Venture Findings - History Issue

ISSUE 2015-2 HISTORY ISSUE $45

KEY INSIGHTS FROM A CENTURY OF VENTURE / 06

对100年来风险投资的主要观察

TULIPS, GOLD RUSH, AND DOTCOM / 84 风投泡沫：郁金香、 淘金热、互联网

APPLE'S DNA / 92 苹果公司的遗传基因

CORPORATE ADVENTURE IN VENTURE / 104 企业在风投市场冒险 HISTORICAL REGIONAL CASE STUDIES:

GROWING THE VENTURE DRAGON: CHINA / 112 “风投巨龙”的成长 —中国

SEEDING A VENTURE WOLF: BALTICS / 124 “风投之狼”的培养 —波罗的海地区

Design the Future

by Using the Past

KEY INSIGHTS FROM THE HISTORY OF VENTURE

COLLER INSTITUTE OF VENTURE AT TEL AVIV UNIVERSITY

www.collerinstituteofventure.org

EDITORIAL BOARD

Jeremy Coller Eli Talmor Yesha Sivan (Editor-in-Chief)

Robyn Klingler-Vidra (Associate Editor)

TEAM

Ido Yavnai Ann Iveson Odeya Pergament Dvir Shavit Noa Mondrowicz Jane Utting (Copy Editing)

Grace Liu (Chinese)

CONTENTS 04

DESIGN THE FUTURE BY USING THE PAST

Overview of History Issue: Rationale and Content PROFESSOR YESHA SIVAN

Tel Aviv University, Israel

DR. ROBYN KLINGLER-VIDRA

King's College London, U.K.

06

KEY INSIGHTS FROM A CENTURY OF VENTURE

Lessons from the Coller History of Venture Database PROFESSOR ELI TALMOR

COPYRIGHT

© 2015 Coller Holdings Ltd.

London Business School, U.K.

What can we learn through a centurial (1914-2014) analysis of major events in venture?

08

HISTORY OF VENTURE DATABASE: METHODOLOGY AND RATIONALE How and why do you choose the most important events from the past century?

16

THE HISTORY OF VENTURE

TIMELINE

Chronological illustration of key events in each CIVHOV category

1910

1911

1912

1913

1914

1915

1916

1917

1918

1919

DISCOVERY

INVENTION

#8005

The refrigerator

INNOVATION

VENTURE

TABLE

Detailed presentation of the CIVHOV entries and their impacts on venture and the world

#8001

World ID

DESCRIPTION

IMPACT ON VENTURE PATHWAY

IMPACT ON THE WORLD

1914

World War I (WWI) was a global war centered in Europe that took place between 1914 and 1918. It involved all the major world powers in one of the deadliest conflicts in history, and had major repercussions in multiple spheres of politics, culture, and technology.

WWI applied multiple novel technologies, being the first war in which tanks, telephony, radio, armored cars, tanks, and aircraft were put to use, as were chemical (gas) weapons.

More than nine million combatants and seven million civilians died as a result of the war; it had a massive impact on the course of 20th century civilization. As two examples, it led to the founding of the League of Nations, precursor of the UN; and it was a catalyst for near universal suffrage in the United Kingdom and Germany.

#8004 8002

FORD MODEL T 1914

ORGANIZATION

8003

BLOOD TRANSFUSION 1914

FACTOR

Investor AB

The Ford Motor Company’s Model T was the first affordable automobile, and the car that opened up travel to middle-class Americans. The key to Henry Ford’s success was the development of a superbly efficient, mass production assembly line. Revolutionizing traditional manual production, it enabled, in 1914, the streamlining of the assembly process down to only 1.5 hours – a new car was produced every three minutes. That year Ford produced more cars than all the other automakers combined.

Blood transfusion is the process of putting blood from one person into another’s circulation. This requires extracting the blood from a donor, optionally processing and storing it for some time, and putting it into the recipient without adverse (or lethal) effects. In 1914 sodium citrate was discovered as an anti-coagulant, allowing storage of blood for days in blood banks. A primary earlier advancement was the discovery of human blood groups (O, A, and B) by the Austrian Karl Landsteiner in 1901, without which blood transfusion could be lethal.

8004

INVESTOR AB 1916

Investor AB is a Swedish investment company. Its business model is based on significant ownership positions in each company it invests in, allowing it to impact key decisions. It is focused on Sweden but also on the greater Nordic area.

8005

THE REFRIGERATOR 1916

The domestic electric refrigerator keeps food from spoiling by using the cooling effect of a decompressing gas to cool the thermally insulated chamber where the food is placed. This technology, which replaced ice-cooled ‘Ice Boxes’, was introduced in 1913 and mass-produced by Frigidaire after 1916. The introduction of Freon in 1928 expanded the refrigerator market during the 1930s and provided a safer, low-toxicity alternative to previously used refrigerants; the later discovery that CFC refrigerants harm the ozone layer caused Freon to be banned in 1994 and replaced by other gases.

ENIGMA CIPHER MACHINE 1918

The Enigma was an electro-mechanical, rotor-based cipher machine used for enciphering and deciphering secret messages. It is famous due to its widespread use by the German armed forces in WWII and to its successful cracking by the British cryptanalysts at Bletchley Park. Enigma was invented by the German engineer Arthur Scherbius in 1918, and was sold for commercial use before being improved and adopted by the German military.

This is a prime example of gradual advances over three centuries, gated by growing scientific understanding.

OTHER

Blood

58 Venture Finding — 2015-1— History Issue

The assembly line was a giant leap forward and had immense influence on manufacturing and processing across numerous products. The Model T was a major economic multiplier. Popularizing the use of cars revolutionized personal and family travel, and created a whole new market and economic boost that included steel production, improved infrastructure, more and better roads, more shops, and finally more motels as people travelled more often and further.

The ability to store and transfuse blood was first used on a wide scale in WWI, and is credited with saving numerous lives since then in treating hematological diseases, during surgeries, and in treating accident- and battle-related injuries.

Investor AB was created by the Wallenberg family when Swedish law changed to prohibit banks from owning shares in industrials. The company promoted Sweden’s strong industrial presence across the engineering and medical sectors. It is the pioneer of building businesses in the investment manner referred to today as private equity (and venture capital).

#8003

8174

28

TITLE + DATE

EVENT WORLD WAR I

8001

By allowing food to be stored for much longer without spoiling, the refrigerator has had a significant impact on lifestyles worldwide. It permits the buying of food in bulk, with attendant cost savings, and enables the consumption of cold beverages and ice cream. The freezer enables and entire industry – frozen food and usage model.

The need to crack the Enigma drove the establishment of the cryptanalysis program at Bletchley Park, one of the first large-scale collaborative scientific groups of its kind, and triggered the development of a sequence of computing algorithms and hardware that was instrumental in the invention of the modern computer.

The German belief in Enigma's infallibility, coupled with their unawareness of the British success in deciphering its transmissions, gave the Allies an advantage that is said to have shortened WWII by some two years.

THE HISTORY OF VENTURE THE PAST 100 YEARS 20 VENTURE FINDING — 2015-1— HISTORY ISSUE

DESIGN

WeDoDesign.co.il

2 Venture Findings — 2015-2— History Issue

VENTURE FINDING — 2015-1 — HISTORY ISSUE 21

TULIPS, GOLD RUSH, AND DOTCOM Riding the Next Bubble

84

PROFESSOR DAVE VALLIERE

Ryerson University, Canada

Explaining why bubbles in the venture ecosystem happen again and again

APPLE'S DNA

Socially Connected Inventors and Technologies

92

ANDRÉ VERMEIJ

Kenedict Innovation Analytics, the Netherlands

How much did Steve Jobs drive Apple's innovations? Analyzing the dynamic networks producing Apple's edge from 1978–2014

CORPORATE ADVENTURE IN VENTURE Do Giants Create Giants?

104

PROFESSOR GARY DUSHNITSKY

London Business School, U.K.

Google, Intel, and Pfizer: The historic rise of corporate venture capital and its implications for the venture ecosystem

GROWING THE VENTURE DRAGON: CHINA A Regional Case Study

112

PROFESSOR MANHONG MANNIE LIU

Renmin University, China

Key developments in China's Venture Capital market 1985–2015 and forecast for the future

SEEDING A VENTURE WOLF: BALTICS A Regional Case Study

124

LINAS SABALIAUSKAS

TRINITI Legal Practice, Lithuania

Before Skype was Skype: how public investors fueled the growth of the Baltic venture capital market 1990–2014

Venture Findings— 2015-2 — History Issue 3

什么是 企业生态系统框架： 凌 科勒风险投 乱、快速、全球化 资研究院? 六项潮流为2014年 企业生态系统定型

Jeremy Coller 本文旨在揭示企业生态系统的 生成框架， 着重阐释一些现行 Chief Investment 的、 影响此生态系统的潮流 Officer, Coller Capital

Eli Talmor

Design the Future

by Using the Past

Professor, London Business School; Founding Chairman, Coller Institute of Venture, Tel Aviv University

YESHA SIVAN

Professor and Executive Director, Coller Institute of Venture at Tel Aviv ROBYN KLINGLER-VIDRA

Lecturer, King’s College London; Senior Research Fellow, Coller Institute of Venture at Tel Aviv University

About the History Issue

In 2003, Janus Friis from Denmark and Niklas Zennström from Sweden joined forces with Estonian back-end developers to create Skype (#HOV8135) – Note: the #HOV refers to an entry in our History of Venture database – see p.8 for more details. In 2005, Skype was sold to eBay, the U.S. auction house, for US$2.6 billion.

In 2011, Skype was then sold to Microsoft for US$11 billion.

Contrast Skype’s exponential value creation, in terms of usage and financial returns, with the early failure of VolcalTec, a small Israeli firm that claimed to invent calling via a computer.

While VocalTec was well funded and early to market, Skype won the online peer-to-peer calling market – and won big.

What can entrepreneurs, VCs, LPs, and policy makers learn from this one example? How do we assess the takeaways from such a mega unicorn like Skype?

Consider other unicorns like: Alibaba – (#HOV8152): Alibaba's initial public offering now ranks as the world's biggest at US$25 billion.

Apple – (#HOV8084): in April 2015 Apple reached a valuation in excess of US$700 billion.

Uber – Worth more than US$40 billion within a handful of years in existence.

Xiaomi – Unprecedented rise since its 2010 founding to become a world leading smartphone distributor.

Facebook – (#HOV8137): one of the few companies to reach a valuation in excess of US$10 billion while still privately held.

WhatsApp – Its US$19 billion sale to Facebook threw gasoline on the unicorn trend.

While these examples are

4 Venture Findings — 2015-2— History Issue

revealing, a greater context is needed to fully understand the lessons for venture in general and specific episodes in particular.

As a poignant example in light of Lee Kuan Yew’s 2015 passing, to judge any one milestone in Singapore’s development in isolation would miss the constellation of efforts and achievements that contributed to Singapore going from “third world to first in one generation.”

It is in this spirit that this History Issue presents six articles that explore venture's historical developments in various thematic and geographical contexts.

1. Key Insights From A Century of Venture: Lessons from the Coller History of Venture Database ELI TALMOR

Provides key insights we have drawn from the Coller Institute of Venture History of Venture (CIVHOV) database. The CIVHOV centurial database identifies the critical events in the last 100 years of venture, from 1914–2014.

The article also highlights the methodology and rationale for the construction of the database.

The lessons are just our take on what we can learn from the database; we invite readers to get involved by telling us how they interpret away the CIVHOV database. The entire database is presented in both a visual format as a timeline, and detailed table of the 160 entries we currently have.

2. Tulips, Gold Rush, and DotCom: Riding the Next Bubble DAVE VALLIERE

Identifies key bubbles in the history of venture, taking a broad view which ranges from the Dutch tulip bubble in 1637 through to the dotcom bubble in 2000. The article argues that the

reason why bubbles – be it in horticulture or high-technology – happen again and again is because of the bounded rationality of venture actors. Actors in the venture ecosystem convince themselves that each bubble is in fact not a bubble; that it is somehow different than previous bubbles.

3. Apple's DNA: Socially Connected Inventors and Technologies ANDRÉ VERMEIJ

Explores Apple's technological advances – as measured by their patenting activity from 1978 to 2014. The author tracks developments in the shape and composition of the social networks responsible for producing Apple's patents. Through social network analysis, the author identifies the key position that Steve Jobs and other senior managers occupied in the social network responsible for Apple's patenting activity.

4. Corporate Adventure in Venture: Do Giants Create Giants?

GARY DUSHNITSKY

Reviews the rise and implications of corporate venture capital. In addition to identifying four waves in the history of corporate venture capital, it argues that corporate venture capitalists are important contributors to the venture community as they seek different objectives than traditional venture capital in many respects.

Corporate venture capitalists – such as AT&T Ventures, Pfizer Ventures and BMW i Ventures – are unique in their interest in non-financial return on investment and the depth and breadth of services they can bring to the companies they invest in. The article also highlights the most active corporate venture capitalists in 2014.

5. GROWING THE VENTURE DRAGON: CHINA A Regional Case Study MANHONG MANNIE LIU

Explores the history of the venture capital market in China – currently the world’s largest venture capital market – in key stages from 1985 to 2015. In so doing, the author provides an analysis of the rise of foreign investors, the developments of local stock markets and the VC promotion efforts by

national and provincial governments. The article presents data which tracks the annual rise of investment and deal activity over the period. It closes by outlining predictions for the future of China’s venture capital market – notably the stronger role of the government, further reforms to the financial sector, and a strengthened domestic IPO market.

6. Seeding a Venture Wolf: Baltics A Regional Case Study LINAS SABALIAUSKAS

Focuses on the development of the venture capital industries in one area of the world: the Baltic region (Estonia, Latvia, and Lithuania) since the 1990s (Estonia was, in many ways, the birthplace of the abovementioned Skype). In particular, it highlights the key role of public (e.g. government and regional organizations) investment entities in acting as early investors in, and educators advancing knowledge of, venture capital in this dynamic region.

Towards the Future

Together, the CIV History of Venture (CIVHOV) database, the three thematic articles (on Bubbles, Apple patenting, and corporate venture capital), and the two regional case studies (on China and the Baltics), paint a diverse picture of venture’s history. Such depictions give us a framework whereby we can evaluate past, present, and – most critically – design the future of venture.

We hope you find our History Issue interesting and important. But even more, we hope to excite and entice you to develop your own historical analysis in general and on the History of Venture database in particular.

As always, our issue closes by highlighting recent news compiled by the CIV research team in accordance to the categories of Public Authorities, Institutional Investors, Venture Capitalists, and Entrepreneurs.

We look forward to engaging with you in the Coller Institute of Venture Community. Join us as we design the future of venture.

Venture Findings — 2015-2 — History Issue 5

对100年来风险投资的主要观察

Key Insights from a Century of Venture Lessons from the Coller History of Venture Database

ELI TALMOR

Professor, London Business School

6 Venture Findings — 2015-2— History Issue

Introduction: Insights From the CIVHOV Centurial Database

The mass of information in our CIVHOV centurial database presents many potential insights, but these can take many years to study and coax out. What follows are initial key insights that emerged in the past year from our own observations. Naturally, as with any historical review, these stem from our own biases and perspectives. Each insight can be developed further and argued for: they can be applied and be relevant, or irrelevant, in various settings. At a minimum we point at the kinds of insights we expect users of the database to gain. At best, we hope these specific insights could serve policymakers of all levels.

1. It Isn’t Only Technology

True, nothing changes the world like technology (think pivotal technologies like fire, the wheel, or the horse harness), but the venture ecosystem includes many other critical elements: institutions, legislative acts, political changes, wars, and social upheavals.

Our database includes entries such as DARPA (the Defense Advanced Research Projects Agency, a key driver of innovation, which gave us the internet) (#HOV8046); both World Wars (which gave a huge impetus to the development and testing of new technology) (#HOV8001, #HOV8022); business outsourcing (which made available a large pool of international expertise) (#HOV8058); the Davis and Rock partnership (which played a key role in funding early Silicon Valley startups) (#HOV8055), and the Bayh–Dole Act of 1980 (whose release of government-funded IP encouraged universities to spin off startup companies, #HOV8091).

For a recent event, consider the seed accelerator Y Combinator (#HOV8139). Founded in 2005, this startup incubator defined the intensive, three-month engagement model that helped over 500 startups that attained a combined value of over US$13 billion.

Even more influential is the fact that its acceleration model has been emulated worldwide, leading to the creation of over 150 accelerators by 2013.

2. Individuals Matter

While many entries in the database are the results of global political and social forces, or of large organizational efforts, individuals have significant roles to play. Some do it in the role of inventors and discoverers, though not just the lone ‘mad scientist’ stereotype – most still work in teams or organizations, but innovate beyond the mandate given to them (a noticeable exception is Alan Turing, whose groundbreaking development of the Turing Machine paradigm was entirely his own, #HOV8021). Others contribute by creating major changes in the ecosystem in which ventures can thrive.

Examples of individual innovators who made a difference include Charles Townes (the laser, #HOV8054), Simcha Blass (drip irrigation, #HOV8057), Dan Bricklin (the electronic spreadsheet, #HOV8094), Bob Thomas (the computer virus, #HOV8098), Jeff Bezos (Amazon.com, #HOV8120), and Mark Zuckerberg (Facebook, #HOV8137). People who made their mark on the ecosystem include influencers like ‘the Father of Silicon Valley’ Fred Terman (#HOV8037), Dean of Stanford’s School of Engineering. In 1951 he had the vision and then spearheaded the establishment of the Stanford Industrial Park, which led to the creation of the university/government/industry partnership model that made the peninsula a hotbed of innovation.

Some individuals impact the history of venture through their negative actions. One example is William Shockley, the Nobel Prize-winning co-inventor of the transistor (#HOV8156), whose paranoid management practices drove his best engineers – the ‘Traitorous Eight’ – to leave his company and start Fairchild Semiconductor (#HOV8045), the company that co-invented the integrated circuit and seeded numerous key players in the explosive growth of Silicon Valley.

Another example is Adolf Hitler, whose insistence on the expulsion of Jewish scientists in the 1930s, no matter what the cost to German universities (#HOV8017), resulted in a huge setback to German science while providing the U.S. and U.K with a game change advantage in innovation during and after World War II.

Venture Findings — 2015-2 — History Issue 7

About the CIV History of Venture database ANN IVESON

Senior International Fellow (London), Coller Institute of Venture at Tel Aviv University

The Coller Institute of Venture History of Venture (CIVHOV) database is at the core of the institute’s History research strand (other strands being Deep Innovation, University Venture, and Policy). Arguably, it is the first effort in venture research that aims to build and maintain a database of key related events.

The study of history in itself is valuable in any domain, if only because of the adage, “Those who fail to learn from history are doomed to repeat it.” Certainly in an evolving field like venture, history can provide ideas, lessons, and caveats. That said, we ask: what is the value of a venture database? What can we expect to learn in this way that is better than others? Here are some of our answers: • A database provides researchers with raw data to mine and apply in their own work.

This can influence the venture research ecosystem by seeding new studies that could lead to insights about the present and future of venture. It will enable other researchers to develop their own interpretations, which may augment, modify, or contradict ours, which in turn will lead to a lively dialog and increase the overall state of knowledge in this field.

• A database, by its very nature, allows advanced queries that can create insights by cross-referencing, correlating, contrasting, and comparing multiple entries. This can uncover useful emergent insights about patterns and dependencies. For instance, it can show what earlier conditions and developments led to later successes (or failures). This applies not only to inventions, but also (perhaps less obviously) to enablers including government organizations, national policies, and legislative acts.

8 Venture Findings — 2015-2— History Issue

• A database allows us to characterize the significance of singular innovations, against the background of greater trends. For example, the invention of the contraceptive pill (#HOV8149) not only played a major role in facilitating women’s liberation, but was initially encouraged and funded by two early feminist activists – in a sense it was a ‘made to order’ innovation integrated into the overall flow of the feminist cause.

• Our centurial database points researchers and practitioners to areas requiring further study. It should highlight gaps evidenced by the scarcity of information in some entries, and may include suggestions for further study.

Our initial database, selecting just 160 entries, is daringly selective. To benchmark, there were over 200 Nobel Laureates in physical and life sciences during the same period (excluding engineering and other areas of venture not covered by the Nobel Prize). The idea is to grow it selectively, with increasing benefits as its size, quality, and methods of presentation and query improve. Growing the database is a key goal in our plan: we will call for the involvement of researchers and also the interested community – through a moderated process – for the addition of entries and insights. Once we have deepened its coverage of the past century we may go further back in time.

3. The Free Flow of Ideas Is an Enabler

Innovation often occurs between disciplines.

When people with different backgrounds talk to each other, major breakthroughs can result.

A classic example is the debt the history of computing owes to a chance encounter in 1944. Herman Goldstine, who was working on a successor to the ENIAC computer (#HOV8021), was waiting on a train platform when he saw the famous mathematician, John von Neumann, and started a

Adolf Hitler's expulsion of Jewish scientists in the 1930s (#HOV8017) provided the U.S. and U.K. with a game change advantage. conversation. Von Neumann was then working on the atomic bomb at Los Alamos (#HOV8032) and badly needed a computer but had no idea one was being built due to security classification barriers. He then volunteered to join Goldstine’s team and soon generated the stored program architecture named after him, which is the basis of all computers to this day.

The lesson: if you want to drive innovation, either build your plants near railway stations or send people out into the world – so they can talk to other people! In academia this concept of idea exchange across organizations and countries is well established in the form of conferences and sabbaticals; in industry, however, it tends to take a second seat behind competitive introversion. Nurturing an environment that empowers such collaboration is of compounded importance.

4. Wars Are Engines of Innovation

As unfortunate as it sounds, major wars invariably drive leading-edge R&D while requiring – and enabling – collaboration, experimentation, and accelerated government funding at levels rarely feasible in peacetime. New materials, technologies, and applications designed to improve the mobilization, navigation, and survival of troops are frequently assimilated for broader public consumption afterwards.

Innovations that owe much to wartime effort include medical advances (#HOV8025) (e.g. blood separation and storage methods, improved wound dressing and skin grafting, tetanus immunization, new malaria treatments, and Squibb’s morphine syrette, #HOV8025); early electronic computers (Colossus in the u.k. and ENIAC in the u.s., #HOV8021); encryption (#HOV8083); the radar (#HOV8023), and jet propulsion (#HOV8024).

A salient case is space flight. Although rocketry research in the U.S. and U.S.S.R. goes back to Goddard and Tsiolkovsky respectively, it was Germany’s V2 ballistic missile program (#HOV8030) during World War II that achieved the massive national investment required to develop large-scale rockets; and it was this program – through the rapid action by the U.S. and U.S.S.R. to grab hold of German equipment and personnel at the end of the war – that seeded, in know-how and personnel, the space programs of both countries. These culminated in the first moon landing in 1969 (#HOV8066) and the direct and indirect scientific breakthroughs that followed.

5. Supportive Legislation and Regulation are a Necessity

Launching new, risky ventures is daunting.

An environment that encourages investing in high-risk ventures is an important enabler, and can make or break the venture ecosystem in a particular region.

Our database shows multiple entries for legislative acts that encourage academia, startups, and investors in the various stages of realizing venture, from idea to commercial release. In the U.S., for example, Capital Gains Tax was reduced in 1942 in order to spur higher-risk investments (#HOV8028); the Small Business Investment Incentive Act was passed in 1980 in order to streamline the process for investing in new ventures (#HOV8090); the 1997 Kyoto Protocol (#HOV8072) boosted R&D into alternative energy technologies to achieve environmental targets, and the Jumpstart our Business Startups (JOBS) Act of 2012 facilitated funding of small businesses, while explicitly addressing the crowdfunding model favored by many small ventures (#HOV8146).

Venture Findings — 2015-2 — History Issue 9

6. Timing Innovations is Difficult

Assigning a date, or even a year, to each entry in the database turned out to be a challenge in many cases. Most innovations are evolutionary in nature, and take years to incubate, between the first idea and the commercial breakthrough. Many make this transition through multiple progressive steps and some don’t even follow a straight timeline. This made assigning ownership and dates problematic, and often necessitated resolution through a curatorial judgment call.

For example, the establishment of blood transfusion (#HOV8003) as a safe and common procedure required multiple steps. The earliest experiments go back to the 17th century, but were highly unreliable and led nowhere until the crucial discovery of human blood groups in 1901. A second key innovation was the addition in 1914 of sodium citrate as an anti-coagulant, allowing storage of blood in blood banks.

Advanced blood separation and storage methods were developed in 1940, enabling the modern model of blood banks and blood donation.

The modern computer (#HOV8021) can be tracked to 1936 when Turing published his seminal paper ‘On computable numbers...’.

Another case in point is the modern computer (#HOV8021), whose birth process spans the period from 1936 (when Turing published his seminal paper ‘On computable numbers...’, laying the theoretical framework), to roughly 1950, when the Pilot ACE (based on Turing’s design) went into operation. In between these dates there were a number of important machines (some developed independently due to wartime secrecy), notably the Zuse Z1 (1938), the ABC (1942), the Colossus (1943), and the ENIAC (1946). Selecting a single date for this innovation has a subjective element; in our view, we selected 1936 as the date.

Many central areas in our lives, such as agriculture, civil engineering, and mechanical engineering, are either not

10 Venture Findings — 2015-2— History Issue

represented, or seriously underrepresented in our database. As a whole, in grey cases of evolutionary processes such as the automobile, we tried to identify the event not as the point of invention but the point of conversion to a massive use.

7. The Truth is Elusive

Not only are the origins of inventions hard to pinpoint in time, as noted above, they tend to become distorted over time, making the research at once more difficult and yet more interesting.

One such case is the discovery of the antibacterial properties of the Penicillium mold (#HOV8010). It is widely known that Alexander Fleming serendipitously observed this effect in 1928, in a Petri dish that had been accidentally exposed to airborne spores. Still, most are unaware that as early as 1877 Louis Pasteur observed the inhibitory effect of molds on bacteria, and that in 1897 another Frenchman, Ernest Duchesne, published his discovery of the healing properties of Penicillium, even curing infected lab animals with it. These, and other published pre-1928 observations in Belgium and Costa Rica, were all ignored and forgotten.

It would be fascinating to understand why the earlier observations of Penicillium’s activity were all ignored.

Another example is the transistor (#HOV8156), whose invention is widely attributed to the Bell Labs team of Shockley, Bardeen, and Brattain. In reality Shockley, though a great physicist in his own right, did not take part in devising the first transistor – he got the credit because he was the team’s manager, a fact that rankled with Bardeen and Brattain so much that they both quit the team.

Such inaccuracies in the ‘accepted wisdom’ about how an innovation came about are fertile ground for further study. To take the case of Fleming, it would be fascinating to understand why the earlier observations of Penicillium’s activity were all ignored: was the environment in the U.K. more accepting

of innovative cures? Was there something about the personalities involved? Was some relevant cultural or institutional factor missing in 19th century science?

Conclusion: Design the Future

by Using the Past

Each of these insights is an open invitation for both research and action.

On the research front, an insight is an invitation to further study and explore the insight itself. For example, we claim that policy is important – but where, and how, and under what conditions, is this the case?

Major state-driven research programs, such as the NASA program (#HOV8158), broke new technological grounds. Yet, we are not yet able to prove economically that this was the most efficient way to achieve the goal. Quite likely the monstrous financial resources that were poured into it (estimated at over US$200 billion) could have possibly been spent more effectively in another form. For these reasons, public policymakers face a veritable menu of public policy choices, as Robyn Klingler-Vidra’s article revealed in the previous issue of Venture Findings.

On the action front, an insight is a recipe for action. For example, the understanding that valuable innovation occurs across disciplines means that actors in the venture ecosystem should encourage such crosspollination. Our own Tel Aviv University is striving to accomplish this by establishing interdisciplinary centers that cut across Academia’s usual silos. Examples include a nano center, brain center, and cyber center.

Each brings together faculty, students, and industry from diverse traditional domains to form an arena for venture in the new domain.

Of course these insights are just a start. The true value of our ongoing work is in enabling the main actors of the venture ecosystem (policymakers, institutional investors, venture capitalists, and entrepreneurs) to gain a unique creative direction for their endeavors. Thus we invite you to share your ideas regarding entries, insights, and how you use them (see the box ‘Engage with the Coller History of Venture database’).

Venture Findings — 2015-2 — History Issue 11

Database Methodology and Structure IDO YAVNAI

Research Fellow, Coller Institute of Venture at Tel Aviv University

NATHAN ZELDES

Research Affiliate, Coller Institute of Venture at Tel Aviv University

The design of the Coller Institute of Venture History of Venture (CIVHOV) database has evolved over the past year. Here are the main design considerations we used: Which entries should be included?

Although any choice is necessarily subjective, we attempted to maintain a consistent set of criteria. Our aim has been to widen the scope beyond the customary focus on technology to innovations from other sectors, and to include the drivers and influences that enable the growth of ventures. We therefore incorporated entries from the entire venture ecosystem, such as VC firms, financial laws, regulatory shifts, major wars, and social movements that affected the way ventures are initiated and supported. By extending the database to these different contexts we attempted to give weight to the ‘why’ and not just the ‘what’ in venture.

For now, we chose to look at 100 years of history, beginning from the start of World War I (1914) and ending in 2014. We acknowledge that this is an arbitrary time frame, but one has to start somewhere, and this date gives us a century of exuberant innovation to work with.

Selected entries had to satisfy at least one of the following criteria: • Be significant on its own merit.

Example: vaccines (#HOV8007).

• Have a disruptive impact on a current business model, and change the way people live and act.

Example: the World Wide Web (#HOV8107).

• Be an enabler, becoming a platform on which a new branch of innovation evolution is founded.

Example: the determination of the structure of DNA (#HOV8040).

• Attain commercial impact as the basis of a viable product line.

Example: the transistor (#HOV8156).

12 Venture Findings — 2015-2— History Issue

Many entries meet more than one of these criteria. For instance, the Ford Model T (#HOV8002) was not the first automobile, and was based on earlier innovations, but Henry Ford combined vision, innovative manufacturing techniques, and aggressive marketing to make it the first widely used, affordable family car. The Ford Model T had a far-reaching impact on 20th century society and was thus disruptive, commercially successful, and an enabler of an immense societal change – earning itself a place in the database which earlier car manufacturers were denied.

Which entries should be omitted?

Obviously, a great many items were not included due to the sheer volume of candidates and the attempt to start with a clear focus. Perhaps more interesting are entries that we left out by conscious decision, after they failed to meet any of our inclusion criteria. For instance, Nikola Tesla may well be crowned as the most productive and broad inventor of the modern time, yet he failed to enter the table since it was constructed around events, not people. As a measure of justice he has gained an indirect mention through Tesla Motors (#HOV8148), named to commemorate his contributions to the design of the modern electrical current.

How should we categorize entries?

The Class attribute of a CIVHOV entry represents the kind of entity that the entry is. We can divide the classes into two loose categories: Idea Generation Entries and Enabling Entries.

Definitions Classes for Idea Generation Entries: Class

Definition

Explanation

Example

The key point is that the discovery is of a pre-existing thing that was hidden. Columbus discovered America; he did not invent or create it.

Insulin

DISCOVERY

Something that already existed but was not known about until detected and made known by its discoverer.

INVENTION

A new object, device, or idea that did not exist previously and was created for the first time by the inventor.

This is the act of creating something from nothing – devising it for the first time, as in the revolutionary invention of the wheel.

The Automated Teller Machine (ATM)

A change in something that already exists, which improves it by applying better ideas or methods than were in use previously.

Innovation takes place when a product, process, or idea is made better in response to a need that was not met by its previous version.

Business outsourcing

An undertaking to achieve a certain goal, often involving some difficulty or risk.

It is good to remember that Venture derives from the word Adventure, and it implies an element of uncertainty and the courage to meet it.

Human Genome Project

Definition

Explanation

Example

A group of people working together for a definite purpose.

An organization can have any purpose, whether commercial or not-for-profit.

Palo Alto Research Center (PARC)

An occurrence that happens at a definite moment or specified duration in time.

The event can be sudden, or long and drawn-out, but must have the coherence that comes from having a clear beginning and end in time.

World War I

A circumstance, fact, or inf luence that affects the matter at hand.

This captures a wide range of entries, including legislative acts, political decisions, demographic shifts, and more.

The Third Reich’s dismissal of Jewish scientists

A catch-all category included to ensure the freedom to expand the database without undue formal constraints.

Schumpeter’s theory of ’Creative Destruction’ and Innovation

INNOVATION

VENTURE

#HOV8006

#HOV8064

#HOV8058

#HOV8128

Classes for Enabling Entries: Class

#HOV8069

ORGANIZATION

EVENT

FACTOR An entry not belonging to any other class.

OTHER

#HOV8001

#HOV8017

#HOV8029

Venture Findings — 2015-2 — History Issue 13

This is of course a preliminary taxonomy. We decided that each entry must belong to only one class, though at times we had difficulty making it so. We can expect that, with time, the list of classes itself will be modified as the database grows and the essence of its entries, and their relationships as a whole, fall into place before us.

Furthermore, we characterized each entry with (possibly more than one) of the following eight tags, representing the domain it belongs to: • For drivers and influencers: 1. Politics / The State / Cultural 2. Economics / Financial Events 3. Accounting / Tax / Legal / Regulation 4. Corporations / Partnerships / Organizations • For inventions and innovations: 5. Materials / Engineering 6. Bio / Pharma / Medical 7. Information and Communications Technology (ICT) 8. Social / Media / Gaming

What information should we record for each entry?

• #HOV number: Each entry was given a unique identifying ‘#HOV number ’ (these are not in sequential order, due to cumulative changes in the database, but a fixed universal searchable tag).

In addition to the ‘dry’ facts (date, country, tags, patents, etc.) we added a number of fields where we provide concise textual information about the entry. These are: • Description: what the entry is or does, and how it came about.

We kept this field formal – the bare definition of the entry in question, and the historical facts of who created or affected it, where, and when.

• Impact on Venture Pathway: the significance of the entry for the history of venture.

14 Venture Findings — 2015-2— History Issue

In the case of many inventions, those that are significant on their own merit, we left this field blank: we are looking here for additional significance to other aspects of HOV. Specifically, this field is about how the entry impacted the venture ecosystem, or triggered a wave of further ventures, or points to some important insight into how ventures work.

• Impact on the World: the effect of the entry on our world in general.

This field examines what the entry has done for humankind, and how it changed the world.

• Additional Details: here we included other facts of interest – including if any Nobel Prizes were conferred on the innovators involved.

A field for Related Entries allows us to crosslink entries across the database.

What’s next?

At the time of writing, the centurial database has over 160 entries, each with a fascinating story to tell. This is a modest but interesting beginning; it is also an ambitious fledgling venture in its own right, and we expect it to grow into a much larger compilation in the future.

An interesting possibility we’re considering is opening the database to crowdsourced additions and corrections. Since we can’t expect the level of public engagement enjoyed by Wikipedia (which contributes to its high standard of error correction), we envision a greater level of moderation to ensure data quality while growing the extent of that data.

Any comments on this idea, or on any other aspect of this project, are welcome. So are suggested additions to the database (with a short explanation of the rationale). See the box ‘Engage with the Coller History of Venture database’ for how to submit these.

Engage with The Coller History of Venture Database The CIVHOV database is intended to create a lively and productive dialog across the venture ecosystem. We invite comments, corrections, suggested new entries (be sure to explain your rationale for these), and anything else you wish to share.

Write to us at HOV@collerinstituteofventure.org

FURTHER READING Ante, Spencer E. (2008). Creative Capital: Georges Doriot and the Birth of Venture Capital. Cambridge, MA: Harvard Business School Press.

Jones, G. and Wadhwani, R.D. (2007) “Entrepreneurship and Business History: Renewing the Research Agenda” Harvard Business School Working Paper 07-007.

Klingler-Vidra, R. (2014) “The Public Venture Policy Menu: Policies Public Authorities Can Take” Venture Findings, 1a: 36-42.

To access the full list of references numbered in this article, please follow the QR Code

Venture Findings — 2015-2 — History Issue 15

THE HISTORY OF VENTURE (1914–2014) 1914

DISCOVERY

1915

1916

INNOVATION

VENTURE

Refrigerator

A new object, device, or idea that did not exist previously and was created for the first time by the inventor.

A change in something that already exists, which improves it by applying better ideas or methods than were in use previously.

#HOV8003

Blood transfusion

An undertaking to achieve a certain goal, often involving some difficulty or risk.

#HOV8001

World War I

A group of people working together for a shared purpose.

EVENT

#HOV8004

ORGANIZATION

FACTOR

Investor AB

An occurrence that happens at a definite moment or specified duration in time.

A circumstance, fact, or influence that affects the matter at hand.

#HOV8002

Ford Model T

OTHER

1918

1919

Something that already existed but was not known about until detected and made known by its discoverer. #HOV8005

INVENTION

1917

An entry not belonging to any other class.

16 Venture Findings — 2015-2— History Issue

#HOV8174

Enigma cipher machine

timeline 1920

1921

1922

1923

1924

1925

#HOV8006

1926

1927

1928

1929

#HOV8010

Insulin

Penicillin

#HOV8008

#HOV8011

Air conditioning

#HOV8007 Vaccines

Synthetic Polymers

#HOV8009 Bell Labs

#HOV8012

Stock Market Crash

#HOV8013

The Macmillan Committee

Venture Findings — 2015-2 — History Issue 17

THE HISTORY OF VENTURE (1914–2014) 1930

1931

1932

1933

1934

1935

1936

#HOV8018

#HOV8019

1937

1938

1939

DISCOVERY

#HOV8016

Synthesis of Vitamin C

#HOV8023 Radar

INVENTION

#HOV8024

Tape recorder 405-line public television broadcasting

Jet propulsion

#HOV8021

Birth of the computer

#HOV8020

#HOV8171

Protein Garbage structure collection analysis by X-ray crystallography

INNOVATION

#HOV8025 Wartime medical advances of WWII

#HOV8014

Electrification

VENTURE

#HOV8022

World War II

EVENT

#HOV8026

Hewlett Packard (HP)

ORGANIZATION

#HOV8015

The 1933 Banking Act

#HOV8017

FACTOR

Third Reich dismissal of Jewish scientists

OTHER

18 Venture Findings — 2015-2— History Issue

timeline 1940

1941

1942

#HOV8039 Silicones

1943

1944

#HOV8027

#HOV8030

Kidney dialysis machine

1945

Ballistic missiles

1946

1947

#HOV8036

#HOV8156

Randomaccess memory (RAM)

1948

1949

Transistor

#HOV8032

The Manhattan Project

#HOV8033

American Research and Development Corporation (ARDC)

#HOV8034

J.H. Whitney & Company

#HOV8028

Reduction of Capital Gains Tax (CGT) rate in the U.S.

#HOV8031

Bretton Woods Agreement

#HOV8035 Post-WWII baby boom

#HOV8157 Cold War

#HOV8029

Schumpeter's theory of ‘Creative Destruction’ and Innovation

Venture Findings — 2015-2 — History Issue 19

THE HISTORY OF VENTURE (1914–2014) 1950

1951

1952

1953

1954

1955

1956

1957

1958

1959

#HOV8048

#HOV8057

#HOV8040

Determination of the structure of DNA

DISCOVERY

#HOV8038

Polio vaccine

#HOV8042 Solar cells

#HOV8081 Fortran

Implantable Drip irrigation cardiac pacemaker

#HOV8049 Credit Card

INVENTION

#HOV8050

Integrated circuit

#HOV8043

Kidney transplant

#HOV8052 Float glass process

INNOVATION

#HOV8046

Defense Advanced Research Projects Agency (DARPA)

VENTURE

#HOV8041

Korean War

#HOV8044

Sputnik satellite launch

EVENT

#HOV8045

#HOV8047

Fairchild Small Business Investment Semiconductor Company (SBIC)

#HOV8158

ORGANIZATION

NASA

FACTOR

#HOV8037

Silicon Valley

OTHER

20 Venture Findings — 2015-2— History Issue

timeline 1960

1961

1962

#HOV8054

1963

1964

#HOV8053

#HOV8056

1965

1966

1968

1969

#HOV8064

High-strength Liquid-crystal display (LCD) carbon fiber

Laser

1967

Automated Teller Machine (ATM)

#HOV8060

#HOV8149

First-generation desktop computers

Birth control pill

#HOV8172

BASIC programming language

#HOV8058

Business outsourcing

#HOV8066

Moon Landing

#HOV8055

Davis and Rock partnership

#HOV8062

The Kauffman Foundation

#HOV8065

Intel Corporation

#HOV8063

Hippie movement

Venture Findings — 2015-2 — History Issue 21

THE HISTORY OF VENTURE (1914–2014) 1970

1971

1972

1973

1974

1975

1976

1977

#HOV8083

#HOV8086

1978

1979

DISCOVERY Optica l fibers

#HOV8070 #HOV8073 Electronic mail (email) #HOV8059 #HOV8077 Medical tomography

INVENTION

#HOV8097

#HOV8076

Handheld cellular phone

Public-Key DNA sequencing cryptography

#HOV8164

WordPerfect

#HOV8094

#HOV8098

Electronic spreadsheet

Computer viruses and malware

#HOV8051

Portable electronic calculator

In vitro fertilization (IVF)

INNOVATION

VENTURE

#HOV8071

Nixon Shock

EVENT

Palo Alto Research Center (PARC)

#HOV8067

Kleiner Perkins Caufield & Byers (KPCB)

#HOV8074

ORGANIZATION

#HOV8079 Temasek Holdings

#HOV8082 Microsoft

#HOV8163

Atari

Korea Technology Advancement Corporation (KTAC)

#HOV8080

Employee Retirement Income Security Act (ERISA)

FACTOR

#HOV8161 NASDAQ

#HOV8072 Japanese venture capital

1G cellular telephone network

#HOV8088

Barcode

Removable digital storage media

#HOV8069

#HOV8087

#HOV8078

Black–Scholes model

OTHER

22 Venture Findings — 2015-2— History Issue

#HOV8084

#HOV8092

#HOV8085

#HOV8096

Apple Inc.

Genentech

Apax Partners Oracle

timeline 1980

1981

1982

1983

1984

1985

1986

#HOV8102

Buckminsterfullerene

#HOV8159

The laptop computer

#HOV8101 3D printing

1987

1988

1989

#HOV8106 Statins

#HOV8103

Humanized monoclonal antibodies

#HOV8107

World Wide Web

#HOV8104

Coronary stent

#HOV8099

DNA fingerprinting

#HOV8108

Collapse of Communism

#HOV8093

Sun Microsystems

#HOV8095

Seavi Advent

#HOV8100

#HOV8105

ARCH Development Corporation

Cisco Systems

#HOV8090

Small Business Investment Incentive Act

#HOV8089

Generation Y (Millennials)

#HOV8091

Bayh–Dole Act

Venture Findings — 2015-2 — History Issue 23

THE HISTORY OF VENTURE (1914–2014) 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

DISCOVERY

#HOV8117

#HOV8112

Genetically modified food

Lithium-ion battery

#HOV8116

2G cellular telephone network

INVENTION

#HOV8120

#HOV8125

Amazon

Stem cell therapy

INNOVATION

VENTURE

#HOV8115

#HOV8129

Gulf War

Dotcom bubble

EVENT

#HOV8109

#HOV8121

#HOV8124

#HOV8110

#HOV8122

#HOV8127

Shanghai Stock Exchange

ORGANIZATION

Cisco Investments

ARM Holdings

Google

eBay

PayPal

#HOV8165

Shenzhen Stock Exchange

#HOV8118

Chinese economic reform

#HOV8114

#HOV8173

Yozma program

1997 Kyoto Protocol

FACTOR

#HOV8113

Open-source software

OTHER

#HOV8111

Hubble Space Telescope

24 Venture Findings — 2015-2— History Issue

#HOV8119

Sony PlayStation

#HOV8123

Dolly the sheep

#HOV8126

Shenzhen Capital Group (SCG)

#HOV8152

Alibaba Group

timeline 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

#HOV8138 Graphene

#HOV8132

iPod portable media player

#HOV8135

#HOV8140

Skype

Cloud computing

#HOV8148

Tesla Roadster

#HOV8133 Wikipedia

#HOV8128

Human Genome Project

#HOV8141

Lehman Brothers collapse

#HOV8134

Bridges Ventures

#HOV8153 SpaceX

#HOV8137 Facebook

#HOV8142

#HOV8136

ChiNext

YouTube

#HOV8139

Seed accelerator Y Combinator

#HOV8131

9/11 impact on cybersecurity growth

Venture Findings — 2015-2 — History Issue 25

THE HISTORY OF VENTURE (1914–2014) 2010

2011

2012

2013

#HOV8147

#HOV8144

2014

DISCOVERY

INVENTION

Big data

Regenerative medicine

INNOVATION

VENTURE

EVENT

ORGANIZATION

#HOV8145

Seed Enterprise Investment Scheme (SEIS)

#HOV8146

Jumpstart Our Business Startups (Jobs) Act

FACTOR

#HOV8143

Fair Value Accounting (IFRS 13)

OTHER

26 Venture Findings — 2015-2— History Issue

#HOV8168

Expanded Genetic Code

timeline

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THE HISTORY OF VENTURE (1914–2014) #HOV

TITLE + DATE

DESCRIPTION

8001

WORLD WAR I 1914

World War I (WWI) was a global war centered in Europe that took place between 1914 and 1918. It involved all the major world powers in one of the deadliest conflicts in history, and had major repercussions in multiple spheres of politics, culture, and technology.

8002

FORD MODEL T 1914

The Ford Motor Company’s Model T was the first affordable automobile, and the car that opened up travel to middle-class Americans. The key to Henry Ford’s success was the development of a superbly efficient, mass production assembly line. Revolutionizing traditional manual production, it enabled, in 1914, the streamlining of the assembly process down to only 1.5 hours – a new car was produced every three minutes. That year Ford produced more cars than all the other automakers combined.

8003

BLOOD TRANSFUSION 1914

Blood transfusion is the process of putting blood from one person into another’s circulation. This requires extracting the blood from a donor, optionally processing and storing it for some time, and putting it into the recipient without adverse (or lethal) effects. In 1914 sodium citrate was discovered as an anticoagulant, allowing storage of blood for days in blood banks. A primary earlier advancement was the discovery of human blood groups (O, A, and B) by the Austrian Karl Landsteiner in 1901, without which blood transfusion could be lethal.

8004

INVESTOR AB 1916

Investor AB is a Swedish investment company. Its business model is based on significant ownership positions in each company it invests in, allowing it to impact key decisions. It is focused on Sweden but also on the greater Nordic area.

8005

REFRIGERATOR 1916

The domestic electric refrigerator keeps food from spoiling by using the cooling effect of a decompressing gas to cool the thermally insulated chamber where the food is placed. This technology, which replaced ice-cooled ‘ice boxes’, was introduced in 1913 and mass-produced by Frigidaire after 1916. The introduction of Freon in 1928 expanded the refrigerator market during the 1930s and provided a safer, low-toxicity alternative to previously used refrigerants; the later discovery that CFC refrigerants harm the ozone layer caused Freon to be banned in 1994 and replaced by other gases.

8174

ENIGMA CIPHER MACHINE 1918

The Enigma was an electro-mechanical, rotor-based cipher machine used for enciphering and deciphering secret messages. It is famous due to its widespread use by the German armed forces in WWII and to its successful cracking by the British cryptanalysts at Bletchley Park. Enigma was invented by the German engineer Arthur Scherbius in 1918, and was sold for commercial use before being improved and adopted by the German military.

28 Venture Findings — 2015-2— History Issue

TABLE IMPACT ON VENTURE PATHWAY

IMPACT ON THE WORLD

WWI applied multiple novel technologies, being the first war in which tanks, telephony, radio, armored cars, tanks, and aircraft were put to use, as were chemical (gas) weapons.

More than nine million combatants and seven million civilians died as a result of the war; it had a massive impact on the course of 20th century civilization. As two examples, it led to the founding of the League of Nations, precursor of the UN; and it was a catalyst for near universal suffrage in the United Kingdom and Germany.

The assembly line was a giant leap forward and had immense influence on manufacturing and processing across numerous products. The Model T was a major economic multiplier. Popularizing the use of cars revolutionized personal and family travel, and created a whole new market and economic boost that included steel production, improved infrastructure, more and better roads, more shops, and finally more motels as people travelled more often and farther.

This is a prime example of gradual advances over three centuries, gated by growing scientific understanding.

The ability to store and transfuse blood was first used on a wide scale in WWI, and is credited with saving numerous lives since then in treating hematological diseases, during surgeries, and in treating accident- and battle-related injuries.

Investor AB was created by the Wallenberg family when Swedish law changed to prohibit banks from owning shares in industrials. The company promoted Sweden’s strong industrial presence across the engineering and medical sectors. It is the pioneer of building businesses in the investment manner referred to today as private equity (and venture capital).

By allowing food to be stored for much longer without spoiling, the refrigerator has had a significant impact on lifestyles worldwide. It permits the buying of food in bulk, with attendant cost savings, and enables the consumption of cold beverages and ice cream. The freezer enables an entire industry – frozen food and usage model.

The need to crack the Enigma drove the establishment of the cryptanalysis program at Bletchley Park, one of the first largescale collaborative scientific groups of its kind, and triggered the development of a sequence of computing algorithms and hardware that was instrumental in the invention of the modern computer.

The German belief in Enigma's infallibility, coupled with their unawareness of the British success in deciphering its transmissions, gave the Allies an advantage that is said to have shortened WWII by some two years.

Venture Findings — 2015-2 — History Issue 29

THE HISTORY OF VENTURE (1914–2014) #HOV

TITLE + DATE

DESCRIPTION

8006

INSULIN 1921

Insulin is a hormone produced by the pancreas. It regulates the metabolism of carbohydrates and fats, notably of glucose levels in the blood. In people with type 1 diabetes, a failure to produce insulin means they depend on ongoing insulin injections to stay alive. A method for effective insulin extraction from animal tissue was developed by Frederick Banting and Charles Best in Canada in 1921, and soon entered medical use. Later, the first genetically engineered, synthetic ‘human’ insulin was produced in 1978 at the Beckman Research Institute in California, in collaboration with Genentech.

8008

AIR CONDITIONING 1922

Air conditioning (A/C) is a system or process for controlling the temperature, and sometimes the humidity and purity, of the air in an enclosed living space. Willis Haviland Carrier built the first modern electrical A/C unit in 1902. In 1922, he patented the ‘centrifugal chiller’, the first practical method of air conditioning large space. In 1928, he developed the first residential ‘Weathermaker’, an air conditioner for private home use.

8007

VACCINES 1923

Vaccines provide active acquired immunity to specific diseases by stimulating the body’s immune system to recognize the responsible microorganism as foreign, thus priming it to destroy. The first successful vaccine, for smallpox, was developed by Edward Jenner in 1798, followed by numerous vaccines in the 19th century. The 1920s witnessed an explosion in vaccine development, for diphtheria (1923, by French and English scientists working independently); pertussis, also known as whooping cough (Denmark 1925); tuberculosis (France and Canada), and tetanus (France) in 1927.

8009

BELL LABS 1925

Bell Labs is an R&D facility which is, at present, a subsidiary of Alcatel-Lucent.

Bell Labs was formally created jointly by AT&T and the Western Electric Company in 1925. Since then it has produced numerous inventions of great importance.

8010

PENICILLIN 1928

Penicillin was the first antibiotic (antibacterial) drug to enter medical use. It was discovered accidentally as a by-product of the Penicillium mold by Alexander Fleming at St Mary’s Hospital, London. Subsequently it was productized into an effective medicine that saw widespread use in WWII. By 1944 enough penicillin had been produced to treat all the wounded of the Allied Forces.

8011

SYNTHETIC POLYMERS 1928

Synthetic polymers are human-made polymers (materials consisting of large molecules composed of many repeated subunits). They come in a wide variety of properties, and have equally varied commercial applications, causing some to call them ‘super materials’. The earliest such material was Bakelite, invented in the U.S. by Leo Baekeland in 1907. The next three decades saw an explosion of new materials, notably PVC (1928), polythene (1933), nylon (1938), and Teflon (1938).

30 Venture Findings — 2015-2— History Issue

TABLE IMPACT ON VENTURE PATHWAY

IMPACT ON THE WORLD

Insulin was the first drug produced by genetically modified bacteria, and given its lifesaving role, this was an important milestone in the development of GM technology.

Before the discovery of insulin, a type 1 diabetes diagnosis was equivalent to a death sentence. The discovery and availability of insulin made a type 1 diabetes diagnosis survivable. As of 2013, about 38 million people had type 1 diabetes worldwide.

By the 1950s air conditioning became one of the standards for comfortable living conditions in the Western world. Its use brought major changes in the way that industrial and commercial buildings are constructed. Its invention also provided a breakthrough in quality of life and productivity for those in hot weather regions.

The history of vaccines goes beyond the scientific triumph to involve major cultural and legal controversies. On the one hand, various laws were passed (as early as the U.K. Vaccination Act of 1840) to either enforce or forbid certain vaccines; on the other, various groups opposed vaccination for a variety of reasons, and still do.

Vaccination has led to the eradication of smallpox and a vast reduction in the incidences of many other serious diseases, such as polio.

Bell Labs adopted a then-unique interdisciplinary approach to problem/need solving. As a monopoly, AT&T could provide ample funding and long-time horizons. This is widely seen as an ideal model whereby a corporation can engage in innovative research.

Bell Labs is famous for the many critical innovations that it has produced, including the transistor, cellular telephony, the laser, communication satellites, the UNIX operating system, the C programming language, radio astronomy, and many others that have transformed the world we live in.

Extending far beyond its initial remit, Bell Labs has worked on projects ranging from anti-aircraft missiles to the Apollo program.

Fleming’s serendipitous discovery highlights the role of accident – along with perceptive observation – as a key factor in innovation. It is worth noting that observations of mold as an antibacterial had been published a number of times since the late 19th century (e.g. by Duchesne, Gratia, and Dath), but were entirely ignored. The reason for Fleming’s different outcome merits further scrutiny.

Penicillin itself saved countless lives in war and peace, and created the platform for research into further antibiotics, giving modern medicine one of its prime weapons against disease.

These materials are cheaper, more resistant to heat and chemical erosion, and stronger than previously used natural materials. They are now found in innumerable products.

Venture Findings — 2015-2 — History Issue 31

THE HISTORY OF VENTURE (1914–2014) #HOV

TITLE + DATE

DESCRIPTION

8012

STOCK MARKET CRASH 1929

The Stock Market Crash of October 1929 was the most devastating stock market crash in the history of the United States, and signaled the beginning of the 10year Great Depression that affected all Western industrialized countries. The causes of the crash are a subject of debate among economists.

8013

THE MACMILLAN COMMITTEE 1929

The Macmillan Committee was composed mostly of economists. It was formed by the British government after the 1929 Stock Market Crash to determine the root causes of the depressed economy of the United Kingdom, and ascertain whether the banking and financial industry was a help or hindrance to industry.

8014

ELECTRIFICATION 1930

Electrification refers to the conversion of large areas to the use of electrical power, as opposed to earlier sources such as steam. This involved building central generation plants and distribution grids, and the attendant development and implementation of electrical lighting and power end point equipment in homes and industrial plants. The many required technologies were developed in the late 19th century by Edison and many others; actual electrification proceeded in the early 20th century, starting with major cities and extending rather slowly to rural areas, under various government programs such as the Rural Electrification Administration in the U.S.

8015

THE 1933 BANKING ACT 1933

The Banking Act of 1933 (enacted 16 June 1933) was a statute enacted by the United States Congress that established the Federal Deposit Insurance Corporation (FDIC) and imposed various other banking reforms. The Act was made in the wake of the 1929 Stock Market Crash and the subsequent Great Depression, with a view to restore stability and confidence to the banking system and reduce the chances of a recurrence.

8016

SYNTHESIS OF VITAMIN C 1933

Vitamin C, an essential nutrient for humans, was the first vitamin to be produced artificially. Processes for synthesis were discovered independently in 1933­­—1934 by the British chemists W.N. Haworth and Sir Edmund Hirst, and by the Polish-born Swiss chemist T. Reichstein. Reichstein’s process was suited to cheap mass production, and in 1934 Hoffmann-La Roche bought his patent and became the first pharmaceutical company to mass-produce and market synthetic vitamin C.

8017

THIRD REICH DISMISSAL OF JEWISH SCIENTISTS 1933

On Hitler’s rise to power, over 1,000 non-Aryan academics lost their university jobs under the new race laws. The subsequent exodus of German and Austrian Jewish scientists caused critical damage to Germany’s scientific output which brought invaluable gains to the Allied Forces.

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IMPACT ON THE WORLD The impact of the Great Depression on the U.S. was severe, with the GDP falling by 50% by 1933 while unemployment rose from 3.2% to 27% at its peak. The political, social, and economic repercussions were many. The Great Depression led to the New Deal, a federal intervention program focused on what historians call the ‘3 Rs’: Relief for the unemployed and poor, Recovery of the economy to normal levels, and Reform of the financial system to prevent a repeat depression.

An important outcome was the creation in 1945 of the Industrial and Commercial Finance Corporation, a forerunner of today’s 3i, which was created to provide long-term investment funding for small- and medium-sized enterprises.

The Committee's report (published in 1931) coined the phrase ‘The Macmillan gap’ to denote the different relationship between banking and industry in the U.K. as compared to those in the U.S. and Germany.

By 1930, 70% of houses in the U.S. had electricity.

This created a market for electrical devices to be used purely in the home, such as radio sets and Hoovers, spurring the development of consumer electronics. By the early 2010s close to 20% of the world’s population still didn’t have access to electricity, which is both a human problem and a business opportunity.

The Act restored the banking system but created a gap for venture capital as commercial lending needed to de-risk.

It is interesting to note that whereas the Nobel Prize was awarded to Haworth, it is Reichstein’s independently discovered process that came into commercial use because of its lower cost and manufacturability.

Humans need vitamin C in their diet as they cannot synthesize it; its availability as a manufactured food additive freed people from the exclusive dependence on natural sources such as citrus fruits.

The scientists who left included Albert Einstein, Leo Szilard, Niels Bohr, Edward Teller, Otto Robert Frisch, Rudolf Peierls, and Felix Bloch. After the war they formed the backbone of science at leading U.S. and U.K. universities. Some of these played a key role in the Atomic Bomb program, and after the war they formed the backbone of science at leading U.S. and U.K. universities.

Fifteen went on to win the Nobel Prize.

Hitler's expulsion of Jewish scientists, who left in droves to be welcomed by the U.K. and the U.S., resulted in a huge setback to German science, which had previously been in a global leadership position.

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8018

TAPE RECORDER 1935

A tape recorder is a storage device that records and plays back signals representing sounds or other data, using a magnetic tape for storage. The modern tape recorder was developed in Germany during the 1930s at BASF (then part of IG Farben) and AEG in cooperation with the RRG (German National Broadcasting Corporation) using the magnetic tape invented by Fritz Pfleumer in 1928. The first practical tape recorder from AEG was the Magnetophon K1, demonstrated in Germany in 1935.

8023

RADAR (RADIO DETECTION AND RANGING) 1935

Radar uses the reflection of radio waves to determine the range, altitude, direction, or speed of objects, notably aircraft, missiles, and ships. Early radar technology was developed independently in numerous countries both before and during WWII. Full radar evolved as a pulsed system, which was deployed successfully by the U.K. as an air defense system in time for WWII. This was developed from 1935 by a British Air Ministry team led by Robert Watson-Watt.

Significant development came with the improvement of the cavity magnetron (by John Randall and Henry Boot, U.K.) in early 1940, which emitted microwaves that could detect smaller objects. This technology was given to the U.S. in 1940 in return for the U.K.’s use of U.S. R&D and production facilities. To this end the Radiation Lab (Rad Lab) at Massachusetts Institute of Technology (MIT) was established in 1940 to develop various types of radar using the magnetron.

8019

405-LINE PUBLIC TELEVISION BROADCASTING 1936

The 405-line monochrome analogue television broadcasting system was the first fully electronic television system to be used in regular broadcasting. It was introduced with the BBC Television Service in 1936, and remained in operation in the U.K. until 1985. The 405-line technology was developed in 1934 by the EMI Research Team led by Sir Isaac Shoenberg in the U.K.

8021

BIRTH OF THE COMPUTER 1936

‘The computer’ here is taken to mean a fully programmable, Turingcomplete computer – the kind we all use today. The theoretical framework for the computer, known as the Turing Machine, was developed by British mathematician Alan Turing in 1936. The 1940s saw a number of contenders for the title of ‘the first computer’. The first realization of a Turing-complete computer was built by the German engineer Konrad Zuse, as his Z3 computer, in 1941. Independent efforts took place in the U.K. (Pilot ACE, based on Turing's design, in 1950) and in the U.S. (ENIAC, by Mauchly and Eckert, in 1946). All these were inspired by earlier machines that came short of the above definition: Zuse's Z1 of 1938 (not Turing-complete); the Bletchley Park Colossus (not Turingcomplete and with limited programmability, 1943), and Atanassoff and Berry's ABC (not programmable, 1942).

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IMPACT ON THE WORLD The tape recorder transformed the music industry, first at the studio level and then – by evolving into the ubiquitous cassette recorder – as an important consumer technology. A further development was the Sony Walkman, the first personal music device.

Radio broadcasting was also transformed (as early as during WWII, in Germany) by eliminating the constraint of live transmission.

Of note is the wartime cooperation of the U.K. and U.S., where a U.K.-developed magnetron was productized in the U.S. for use by both countries.

With the need for miniaturization and reliability, the engineering know-how innovated for radar was later deployed in consumer electronics.

Radar is a prime example of military technology that led to civilian use. During the war the system provided the vital advance information that helped the Royal Air Force win the Battle of Britain. Today radar is in wide use in both weapons systems and in civil air and naval use.

The impact of television on humanity cannot be overstressed. It has been responsible for the diffusion of knowledge, culture, and entertainment; for revolutionizing marketing; and for transforming the political process in both democratic and totalitarian regimes. After WWII consumer ownership increased dramatically, and within 10 years, half of all U.S. households had a set; today ownership in the developed world is universal.

After the initial invention, scientists globally worked on improving the quality of TV broadcasting as well as the TV set itself, and the original 405-line system was superseded by higher quality ones, culminating in digital HDTV. It is interesting to note that the different computer projects involved different venture models: private investment (Zuse), government (Pilot ACE), academic (Atanasoff-Berry), military (Colossus) and, academia-military collaboration (ENIAC). The story of the chance encounter between Herman Goldstine, of the ENIAC team, with John von Neumann, of the Manhattan Project, which resulted in mutual assistance with far-reaching outcomes, carries a powerful lesson of the importance of free idea flow to innovative ventures.

WWII was both an impetus and a hindrance to computer development. The Colossus, the ENIAC, and to some extent the Z3 were funded and directed by the military in their respective countries; on the other hand, the war and the attendant secrecy limited the flow of ideas among different inventors and projects. The impact of the computer on humanity goes without saying.

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8020

PROTEIN STRUCTURE ANALYSIS

BY X-RAY CRYSTALLOGRAPHY 1937

X-ray crystallography is a technique for determining the spatial structure of atoms in crystals by diffracting X-rays through them. The technique has been in use since the 1920s for analyzing inorganic materials. British biochemist Dorothy Crowfoot Hodgkin pioneered its extension to analyze the far more complex structures of biomolecules. Hodgkin deciphered the structure of cholesterol in 1937, followed by penicillin in 1945, vitamin B12 in 1954, and insulin in 1969.

8171

GARBAGE COLLECTION 1938

The first refuse compacting vehicle, the Garwood Load Packer, was introduced in the U.S. in 1938. It was a significant development in waste collection, as it was one of the first vehicles to utilize a compactor. This led the way to further automation of waste management.

8022

WORLD WAR II 1939

World War II (WWII) was a global war which took place between 1939 and 1945.

It involved the vast majority of the world’s nations, including all of the great powers. It was the deadliest conflict in world history, and changed the political and social structures of the world in many profound ways.

8024

JET PROPULSION 1939

A turbojet engine is an aircraft engine that produces forward thrust by ejecting a jet of combustion products. It uses atmospheric air from a turbine-driven compressor. The jet engine was first patented in 1930 by Frank Whittle of the Royal Air Force, and in Germany, Hans von Ohain patented a similar engine in 1935. The first aircraft to fly under jet power was the German Heinkel He 178 in 1939, but practical use of jet fighters began in 1944 with the German Messerschmidt Me 262 and the British Gloster Meteor.

8025

WARTIME MEDICAL ADVANCES OF WWII 1939

The new weaponry in WWII led to rapid advances in the development and productization of medical and surgical methods. New developments included blood separation and storage methods (developed by Charles Drew in the U.S. in 1940), improved wound dressing and skin grafting, tetanus immunization, new malaria treatments, and methods for better dosing and drug delivery in combat (Squibb’s morphine syrette, 1939, being an early example). On the production front, the war put medicine manufacturing on an emergency footing, which encouraged the development of new methods of mass production for vital medicines (e.g. penicillin and sulphonamides).

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IMPACT ON THE WORLD X-ray crystallography went on to become a widely used tool, critical in determining the structures of many biological molecules where knowledge of structure is critical to an understanding of function.

For example, without such composition knowledge statins could not have been developed in 1978.

One of the very early engineering pathways to facilitate recycling technologies and waste management.

Given the growth of urban populations, the move to evermore advanced collection and compacting methods is crucial to our way of life, and compacting methods are crucial for efficient waste management and environmental sustainability.

WWII applied significant innovations in strategy, weaponry, and communications, and was the first war to mobilize large collaborative groups of scientists and mathematicians empowered with significant national funding in the U.S. (the Manhattan Project) and in Britain (Bletchley Park). Inventions developed during the war, for example jet-powered aviation and computers, set the foundation for the next two decades, as applications were turned to civilian consumption and peacetime development. A notable example is the space program and the moon landing, enabled by technology and personnel transferred from Germany to the U.S. Although they entered WWII too late to have a major impact, after the war jet engines transformed both civil and military aviation.

Drew’s work on blood storage was the model for today’s blood banks and volunteer blood donation programs.

These advances contributed significantly to survival rates of the war's numerous casualties, and continue to save lives to this day.

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8026

HEWLETT PACKARD (HP) 1939

Hewlett Packard (HP) is one of the earliest Silicon Valley startups. It was founded in 1939 by Bill Hewlett and Dave Packard, two electrical engineers from Stanford. HP initially focused on electronic test equipment (its first product being a precision audio oscillator with innovative circuitry). The company incorporated in 1947 and went public ten years later, becoming one of the world’s largest computer makers.

8039

SILICONES 1940

Silicones are polymers that include any inert, synthetic compound made up of repeating units of siloxane. Silicone rubbers are non-reactive, resistant to extreme conditions and temperatures, and have a proliferation of applications across all industrial sectors. Frederic Stanley Kipping was the first to achieve extensive synthesis of silicone compounds in 1940, and coined the name ‘silicones’. Dow Corning started mass production of silicone-based materials in 1943, followed by GE in 1947, with Shin-Etsu Chemical in Japan perfecting mass production in 1953.

8028

REDUCTION OF CAPITAL GAINS TAX (CGT) RATE IN THE U.S. 1942

Whilst Capital Gains Tax (CGT) had been levied at rates lower than federal income tax, the gap widened dramatically in 1942 with a maximum CGT of 25% against the upper income tax rate of 88%. Furthermore, the threshold on which highest rate income tax applied was slashed significantly, whereas 50% of all capital gains could be excluded on assets held for more than six months. The rationale of reducing the CGT rate was to encourage risk-taking in investment and reduce the cost of capital, thus spurring venture.

8029

SCHUMPETER'S THEORY OF ‘CREATIVE DESTRUCTION’ AND INNOVATION 1942

The theory of Creative Destruction views Innovation as the mechanism for economic change and growth, with the entrepreneur as its agent. The theory, also known as ‘Schumpeter's gale’, is described in the second of Joseph Schumpeter's major works, ‘Capitalism, Socialism and Democracy’. In it Schumpeter argued that technological innovation often creates temporary monopolies, allowing abnormal profits that would soon be competed away by rivals and imitators. He said that these temporary monopolies were necessary to provide the incentive necessary for firms to develop new products and processes.

8032

THE MANHATTAN PROJECT 1942

The Manhattan Project was a secret R&D project in the U.S. that produced the first atomic bombs during WWII. It took place between 1942 and 1945. The project required a massive effort. It employed more than 130,000 people and cost nearly US$2 billion (the equivalent of about US$26 billion in 2015). Research and production took place at more than 30 sites across the U.S., U.K., and Canada.

8027

KIDNEY DIALYSIS MACHINE 1943

Dialysis is the process of filtering harmful wastes from the blood of a patient suffering from renal failure. The first dialysis machine (‘artificial kidney’) was developed in 1943 by Willem Kolff in the Netherlands, although it was not successful at treating kidney failure until 1945.

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HP is widely considered the archetype of the Silicon Valley ‘Garage startup’, and was in fact founded in Packard’s garage in Palo Alto, California. Bill Hewlett and Dave Packard were encouraged by their Stanford mentor, Professor Fred Terman. This crossover from academic influencer to innovative ventures was typical of Terman, who encouraged his students to form their own companies and personally invested in many of them, resulting in firms such as Litton Industries, Varian Associates, and Hewlett-Packard.

HP was responsible for much of today’s hi-tech work culture, values, and aspirations: - management by objective - set values to guide, autonomy to execute - fostered innovation by employees - open factory floor (never lock the room) - focus beyond profit on responsibilities to employees and society - enjoy your work frame of mind.

Casual social activities for employees.

Silicones are used in countless applications: the insulation of wiring and other parts in computer and electronic appliances; in medical devices; to alter the texture of fabrics and other materials; in detergents, personal hygiene, and cosmetics; automotive lubricants, and coating buildings and cars.

Preferential tax rates for capital gains may increase the proportion of higher-risk investment such as in startup or venture capital businesses.

Increased early-stage investment capital available for venture activities.

Schumpeter’s theory played a pioneering role in the development of theories of innovation and entrepreneurship.

The project involved the cooperation of science and the military at an unprecedented scale, using a management model that successfully accelerated massive innovation. Of interest is the fact that the project was instigated by the U.S. scientific community (Szilard, Einstein et al), who convinced the political echelon to get it underway; the U.S. army then led the execution and supervised the scientists.

The Manhattan Project’s primary result was the nuclear destruction of Hiroshima and Nagasaki, which at once kicked off the nuclear arms race and horrified the world into never putting it to the test. The project also spurred the development of nuclear energy generation, the use of nuclear energy to power navy vessels, and medical research into radiology for cancer diagnosis and treatment.

The dialysis machine led Kolff to the concept of developing other artificial organs. He subsequently worked on a heart and lung machine used in cardiac surgery and was involved in developing the first artificial heart.

Dialysis machines keep countless patients alive, and enable many to survive until a donor kidney becomes available for transplant.

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8030

BALLISTIC MISSILES 1944

A ballistic missile is a military rocket that follows a ballistic flightpath to its target; that is, except for a relatively brief period after launch, its trajectory is largely unpowered and governed by gravity. The first ballistic missile was the German V-2, developed by Wernher von Braun during WWII. It applied advanced technologies such as liquid fuel engines, supersonic aerodynamics, gyroscopic guidance, and rudders in jet control. With a range of over 200 miles and a Mach 4 speed it was virtually unstoppable.

8031

BRETTON WOODS AGREEMENT 1944

The Bretton Woods agreement (named after the New Hampshire location of the international conference that negotiated it) was a system of monetary management that established the rules for commercial and financial relations among the world’s major industrial states in the mid-20th century. Major outcomes of the Bretton Woods conference included the formation of the International Monetary Fund and the International Bank for Reconstruction and Development, and the proposed introduction of an adjustable pegged foreign exchange rate system. The U.S dollar became an international reserve currency that was linked to the price of gold.

8033

AMERICAN RESEARCH AND DEVELOPMENT CORPORATION (ARDC) 1946

The American Research and Development Corporation (ARDC) was a pioneering venture capital and private equity firm founded in 1946 to encourage private sector investments in businesses run by WWII veterans. It formalized the model of due diligence and post-investment monitoring. It is considered the first institutional venture capital firm. It was founded by Georges Doriot, the former Dean of Harvard Business School and the ‘father of venture capitalism’, with Ralph Flanders and Karl Compton (former president of MIT).

8034

J.H. WHITNEY & COMPANY 1946

J.H. Whitney & Company is a U.S. venture capital firm founded in 1946 by John Hay Whitney and Benno Schmidt. Its goal was to finance entrepreneurs who could not get banks to finance their plans, by claiming that ‘Our business is the adventure’. It was the first venture capital investment firm in the U.S.

8035

POST-WWII BABY BOOM 1946

The baby boom that followed the end of WWII was a rise in births in the U.S. and other countries following the return of soldiers to their homes. In 1946, U.S. births increased by 20% to 3.4 million, more than any time before. High birth rates continued until 1964, by which time there were 76.4 million ‘baby boomers’ in the U.S., comprising 40% of the population.

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Many of the scientists who had worked on the V-2 were repatriated after the war’s end to the U.S. or Russia, and put to work on their space programs.

Von Braun played a leading role in the U.S. space program and architected the Saturn V rocket that was used to send men to the moon. The American move to integrate the German scientists into its own space venture is a fine example of wise management of innovative human capital.

Over 3,000 V-2 were fired at Allied targets, resulting in 9,000 deaths. While the V-2 had no effect on the outcome of the war, its value was in its ingenuity and technological daring, which set the stage for the next 50 years of rocketry, culminating in the intercontinental ballistic missiles of the Cold War and the beginnings of modern space exploration.

The U.S. asserted its political and financial leverage, and the developed economies’ focus shifted to international trade away from inter-war isolationist policies to stimulate growth.

ARDC was the first public venture capital firm that did not depend on wealthy individuals for capital. It is credited with the first major venture capital success story for its funding of the Digital Equipment Corporation (DEC) in 1957. This success probably secured the Boston area for minicomputer development as well as spurring many others to create VC firms. Former employees of ARDC have gone on to found several prominent venture capital firms, including Greylock Partners (founded in 1965 by Charlie Waite and Bill Elfers), and Morgan, Holland Ventures, the predecessor of Flagship Ventures (founded in 1982 by James Morgan).

Benno Schmidt is credited with coining the phrase ‘venture capital’, an abbreviation of ‘private adventure capital’.

This baby boom significantly affected the demographics and culture in the West. The phenomenon is not limited to the U.S.; with advancements in radio and TV broadcasting, boomers in each country were connected to create a global cultural mindset. Their numbers made them an obvious market for all businesses: new products, new needs, plus production scalability. Culturally, boomers are often associated with counterculture, the civil rights movement, and the feminist cause of the 1970s. The concurrent arrival of baby boomers to retirement age, which is ongoing, has many economic and societal implications.

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8036

RANDOM-ACCESS MEMORY (RAM) 1946

Random-access memory (RAM) is a form of computer data storage device that allows data items to be read and written in roughly the same amount of time, regardless of the order in which data items are accessed. The first RAM device was the Williams Tube, invented by Frederic Williams and Tom Kilburn in the U.K. in 1946. It was superseded in the 1950s by magnetic core memory, which enabled far larger memory capacity, and this in turn was replaced with silicon RAM chips in the 1970s.

8156

TRANSISTOR 1947

A transistor is a semiconductor device used to amplify and switch electronic signals and electrical power. It is the basic building block of both discrete electronics and integrated circuits. The bipolar transistor was invented in the U.S. in 1947 by William Shockley, John Bardeen, and Walter Brattain at Bell Labs. (As a matter of fact Shockley, the team’s manager, did not take part in this invention, and his getting the credit caused the other two to leave the team.

Shockley went on to invent, by himself, the improved junction transistor).

8157

COLD WAR 1947

The Cold War was a state of political and military tension after WWII between powers in the Western Bloc (the U.S., its NATO allies, and others), and powers in the Eastern Bloc (the Soviet Union and its allies in the Warsaw Pact). It is commonly taken to have lasted from 1947 to 1991.

8041

KOREAN WAR 1950

The Korean War was a war between North and South Korea, in which a U.N. force led by the U.S. fought for the South, and China fought for the North, assisted by the Soviet Union. The war arose from the division of Korea at the end of WWII and from the global tensions of the Cold War that developed immediately afterwards.

8037

SILICON VALLEY 1951

Silicon Valley is a nickname for the southern portion of the San Francisco Bay Area. It is home to many of the world’s largest hi-tech corporations, as well as thousands of tech startup companies. The term ‘Father of Silicon Valley’ is applied to Fred Terman, Dean of Stanford’s School of Engineering, together with William Shockley, co-inventor of the transistor. Terman spearheaded the creation in 1951 of Stanford Industrial Park by leasing land to attract companies such as Varian, HP, Eastman Kodak, GE, and Lockheed; Shockley opened Shockley Semiconductor Laboratory in Mountain View in 1956. In 1954 Stanford established its Honors Cooperative Program, which allowed engineers to combine work with their graduate studies.

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The Williams Tube was used in some of the early electronic computers in the 1940s and 1950s, in the U.K., U.S. and U.S.S.R., until magnetic core memory took over.

Today silicon DRAM chips are a vital component in every computer.

The advent of the transistor revolutionized electronic circuitry, driving first the step from large, power-guzzling vacuum tubes to compact solid state electronics – and then the even greater move to integrated circuits subject to Moore’s Law of exponential miniaturization.

The resultant progress in ever-smaller, more powerful computers paved the way to endless innovations in software and hardware.

The transistor (first in its discrete form and then as part of an integrated circuit) has been the key building block of the entire electronics and computer industry since the 1960s.

The Cold War was arguably a driver of innovation, both in direct military and intelligence R&D, and indirectly through encouraging the Space Race in the 1960s, culminating in the U.S. moon landing.

The Cold War and its events had a deep effect on much of the world, and have left a significant legacy.

It led the U.S. and the U.S.S.R. to massively stockpile strategic nuclear weapons; the ensuing threat of nuclear warfare gave rise to sometimes bizarre concepts like that of mutually assured destruction (MAD). The Cold War also left its mark on popular culture, especially in media, featuring themes of espionage (such as the internationally successful James Bond films).

The Korean War gave a boost to the U.S. electronics and aerospace industries. The lucrative government contracts spurred many companies’ growth, such as IBM and Raytheon.

Stanford’s influence led to the creation of the university–government–industry partnership model and made the peninsula a hotbed of innovation. In 1957, eight leading scientists left Shockley Semiconductor Laboratory and formed Fairchild Semiconductor. Engineers from Fairchild subsequently started Intel and many other companies in Silicon Valley. This model, where a supportive ecosystem enables the growth of ever more hi-tech companies, is now common in hi-tech hubs (e.g. Israel).

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8038

POLIO VACCINE 1952

The polio vaccine protects against poliomyelitis, a crippling and at times lethal disease. Two polio vaccines are used throughout the world. The first was developed by Jonas Salk and first tested in 1952; it consists of an injected dose of inactivated (dead) poliovirus. The second is an oral vaccine developed by Albert Sabin and tested in 1957, using attenuated poliovirus.

8040

DETERMINATION OF THE STRUCTURE OF DNA 1953

The double helix structure of DNA, the molecule that encodes genetic information in all living organisms, was discovered by James Watson and Francis Crick in their lab at the University of Cambridge in 1953, using experimental data collected by Rosalind Franklin and Maurice Wilkins.

8042

SOLAR CELLS 1954

A solar cell, or photovoltaic cell, is an electrical device that converts the energy of light directly into electricity. The first practical solar cell was developed in 1954 at Bell Laboratories by Daryl Chapin, Calvin Souther Fuller, and Gerald Pearson.

8043

KIDNEY TRANSPLANT 1954

Kidney transplantation is the organ transplant of a kidney into a patient with end-stage renal disease. The first kidney transplants, carried out in the early 1950s in the U.S., had limited success because of tissue rejection. The first truly successful transplant was conducted in 1954 by Joseph Murray on identical twins to circumvent this problem. The introduction of immunosuppressive drugs in 1964 enabled transplants from unrelated donors.

8044

SPUTNIK SATELLITE LAUNCH 1957

Sputnik 1 was the first artificial Earth satellite, launched by the U.S.S.R. in October 1957. It was designed by Sergei Korolev.

8045

FAIRCHILD SEMICONDUCTOR 1957

Fairchild Semiconductor International, Inc. is an American semiconductor company based in San Jose, California. The company was founded in 1957 by the ‘Traitorous Eight’, key employees of the Shockley Semiconductor Laboratory who resigned together. Among them were key figures in the history of semiconductors, and their new company, Fairchild Semiconductor, was responsible for the major progress of the industry in the following decade.

8052

FLOAT GLASS PROCESS 1957

Float glass is a sheet of glass made by floating molten glass on a bed of molten metal, typically tin. This method gives the sheet uniform thickness and very flat surfaces. The process was invented by Sir Alastair Pilkington and Kenneth Bickerstaff in the U.K. between 1953 and 1957, and was commercialized in 1960.

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IMPACT ON THE WORLD Poliomyelitis (polio) was a major health threat worldwide, crippling and killing large numbers of people, especially children. The vaccine enabled a global effort to eradicate polio, launched in 1988 by the World Health Organization, UNICEF, and The Rotary Foundation. These efforts have reduced the number of annual diagnosed cases by 99% – from an estimated 350,000 cases in 1988 to 223 cases in 2012.

Understanding the structure of DNA is crucial to understanding the mechanisms underlying cell functionality, and therefore life itself. This discovery was the catalyst for the development of molecular biology, which in turn revolutionized many areas of biology and medicine.

Solar cells provide ready power in off-the-grid applications, notably space vehicles and remote installations on Earth. They are also used in solar panels as a green energy alternative to fossil fuels, although they have not yet become an economic competitor to the latter.

The kidney was the first successful organ to be transplanted. It encouraged further work into organ transplant and research on drugs to counter rejection. The next decade witnessed the first liver, lung, and heart (1967) transplants.

Today kidney transplant is a common procedure that extends life by 10–15 years more than what can be achieved with dialysis.

U.S. public reaction led to the creation of the Advanced Research Projects Agency (later renamed the Defense Advanced Research Projects Agency or DARPA), NASA, and an increase in U.S. government spending on scientific research and education.

Sputnik 1 provided scientists with important scientific data on the atmosphere. More importantly, it initiated the Space Race by jolting the U.S. into action upon realizing that Russia was winning the battle for supremacy in spaceflight.

Fairchild Semiconductor co-invented and manufactured the first commercial integrated circuit. It recruited talented employees, many of whom went on to have leading roles in the semiconductor and venture capital industries.

Companies like Intel, AMD, Intersil, and others were founded by Fairchild veterans, and are in fact sometimes referred to as ‘Fairchildren’.

An interesting lesson in management: Shockley’s harsh management practices cost him his best employees, and ultimately led to his company’s failure.

Taken for granted now, this process revolutionized glass manufacturing, allowing the cost-effective production of large sheets of glass for windows and other uses. It is also more efficient in terms of energy used and on account of continuous production.

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8081

FORTRAN 1957

Fortran (previously FORTRAN, from Formula Translating System) is a generalpurpose compiled programming language that is especially suited to numeric computation and scientific computing. Fortran was developed by John Backus at IBM. Its major breakthrough was that it could generate code with a performance comparable to that of hand-coded assembly language.

8046

DEFENSE ADVANCED RESEARCH PROJECTS AGENCY (DARPA) 1958

The Defense Advanced Research Projects Agency (DARPA) is an agency of the U.S. Department of Defense and responsible for the development of new technologies for use by the military. DARPA began as the Advanced Research Projects Agency (ARPA), created in 1958 by President Eisenhower. It was started in response to the Sputnik launch by the U.S.S.R.

8047

SMALL BUSINESS INVESTMENT COMPANY (SBIC) 1958

A Small Business Investment Company (SBIC) is a privately-owned company in the U.S. that is licensed by the Small Business Administration (SBA). SBICs supply small entrepreneurial businesses with financing, providing a viable alternative to venture capital firms. This government-sponsored program was defined in the Small Business Investment Act of 1958: the government would lend, i.e. provide debt finance, to privately owned investment companies who, in turn, would provide capital to new and emerging companies.

8048

IMPLANTABLE CARDIAC PACEMAKER 1958

A cardiac pacemaker is a medical device that uses electrical impulses, delivered by electrodes contracting the heart muscles, to regulate the beating of the heart.

The first successfully implanted pacemaker was designed by Rune Elmqvist in Sweden in 1958.

8049

CREDIT CARD 1958

A credit card is a payment card issued to users as a system of payment. Whilst charge cards, led by Diners, were available earlier, Bank of America issued the first general purpose credit card, the ‘BankAmericard’, in 1958. Together with its overseas affiliates, this product eventually evolved into the Visa system.

Barclays Group launched the first credit card outside the U.S. (in the U.K.) in 1966.

8050

INTEGRATED CIRCUIT 1958

An integrated circuit (also referred to as an IC, a chip, or a microchip) is a set of electronic circuits on one small plate (‘chip’) of semiconductor material, normally silicon. The first IC was developed by Jack Kilby at Texas Instruments in 1958. Six months after Kilby, Robert Noyce at Fairchild Semiconductor independently developed a version that solved many of the practical problems that Kilby’s had not. The patent rights were eventually shared by both companies.

8158

NASA 1958

The National Aeronautics and Space Administration (NASA) is the U.S. government agency responsible for the civilian space program as well as aeronautics and aerospace research. NASA was established by President Dwight D. Eisenhower in 1958 with a distinctly civilian (rather than military) orientation, encouraging peaceful applications in space science.

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Fortran was the first high-level programming language that compiled into code comparable in speed to (much more labor-intensive) assembly language programming. It gave the impetus to further development of high-level languages.

Fortran was rapidly adopted by the scientific community. IBM and other mainframe computer makers released it for their machines, and by 1963 over 40 Fortran compilers existed.

DARPA has been responsible for funding the development of many technologies which have had a major effect on the world, including computer networking and the early internet, as well as NLS, which was both the first hypertext system, and an important precursor to the contemporary ubiquitous graphical user interface.

In fiscal year 2013 US$3.5 billion in financing dollars were invested in 1,068 small businesses

The development of the silicon transistor and its first commercial availability in 1956 was the pivotal event which led to the rapid development of practical cardiac pacemaking.

Approximately one million people in the U.S. have pacemakers.

Credit cards were essential to the ease of transfering money electronically in B2C transactions, a key enabler of countless online businesses and startup products.

Credit cards not only spurred consumption, but accelerated the evolution of cashless transactions and developed a new payment system.

It is worth noting that the ‘canonical’ story of Kilby and Noyce as the inventors is a great simplification: there were many others involved.

Integrated circuits are used in virtually all electronic equipment today and have revolutionized the world of electronics and computing. Their continuing miniaturization (governed by Moore’s Law) ensures the exponential growth of computing power at ever-falling prices.

The space program, being at the forefront of human technology, spurred, funded, and proliferated numerous innovative technologies with many spin-offs in other domains.

Most U.S. space exploration efforts have been led by NASA, including the Apollo moon-landing missions, the Skylab space station, and later the Space Shuttle.

Venture Findings — 2015-2 — History Issue 47

THE HISTORY OF VENTURE (1914–2014) #HOV

TITLE + DATE

DESCRIPTION

8057

DRIP IRRIGATION 1959

Drip irrigation irrigates plants by allowing water to drip slowly to their roots through a network of valves, tubing, and emitters. Simcha Blass and his son (Yeshayahu) created in Israel the first irrigation system that used friction and water pressure loss to release water through larger passageways – thus overcoming the blocking by small particles that affects tiny holes. Blass then partnered in 1965 with Kibbutz Hatzerim to create Netafim, where he developed and patented the first practical surface drip irrigation emitter, which they proceeded to produce on a large scale.

8054

LASER 1960

A laser is a device that emits coherent, monochromatic light through a process of optical amplification, based on the stimulated emission of electromagnetic radiation. Einstein established the theoretical grounding for the laser in 1917.

Charles Townes produced in 1953 the first maser, a microwave amplifier based on similar principles as the laser. Independently, Basov and Prokhorov in the U.S.S.R. suggested in 1955 optical pumping of a multi-level system, later a main method of laser pumping. On 16 May 1960, Theodore Maiman operated the first functioning laser at Hughes Research Laboratories in the U.S. In 1962 Robert N. Hall demonstrated the first semiconductor laser diode device. Their development spurred the take-off of fiber-optic communications.

8149

BIRTH CONTROL PILL 1960

The combined oral contraceptive pill (COCP), often referred to as ‘the Pill’, is a birth control method that inhibits female fertility by the daily ingestion of an estrogen (estradiol) and/or a progestogen (progestin). The chemical basis for the Pill was discovered by Carl Djerassi in Mexico in 1951. The Pill itself was developed by Gregory Pincus and John Rock in the U.S. and commercialized by Searle as Enovid. FDA approval for contraceptive use was granted in 1960.

8055

DAVIS AND ROCK PARTNERSHIP 1961

Davis and Rock, founded by Arthur Rock and Tommy Davis in 1961, played a key role in funding the earlier Silicon Valley startups, notably Intel, Apple Computer, Scientific Data Systems, and Teledyne.

8058

BUSINESS OUTSOURCING 1962

Outsourcing is the strategic use of outside resources to perform activities traditionally handled by internal staff and resources. While its roots go back to the 19th century, it was vastly advanced when Ross Perot founded Electronic Data Systems (EDS) in 1962 to outsource customer software for mainframe programming beyond geographical boundaries. Strategic outsourcing took off further in the 1980s and 1990s, when advances in computing and communications made it practical to outsource IT services and business processes. In the early 2000s it was extended offshore to low-cost, English speaking-countries, especially for managing billing, ticketing, claims, customer support and accounting, and for writing programming code.

8053

HIGH-STRENGTH CARBON FIBER 1963

Carbon fiber is a material consisting of fibers about 5–10 μm in diameter and composed mostly of carbon atoms. Their properties, such as high tensile strength, low weight, and chemical resistance, make them a valuable material in many demanding applications. High-strength carbon fiber was first developed

by Dr Akio Shindo in Japan and then perfected by scientists at the Royal Aircraft Establishment in the U.K.; it was patented in 1963 by the U.K. Ministry of Defence.

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IMPACT ON THE WORLD Drip irrigation transformed agriculture under varied topographic and climatic conditions throughout the world. Because it is extremely efficient in conserving water – 30% to 50% less water is required relative to sprinkling – it can make it affordable to convert unused land into arable land in arid areas.

The now-ubiquitous laser is a good example of science enabling a core technology that was entirely unimaginable until recently. In fact, Townes reported that several eminent physicists – among them Niels Bohr, John von Neumann, and Isidor Rabi – argued that the maser violated Heisenberg’s Uncertainty Principle and therefore could not work, and tried to dissuade him from continuing his work!

The laser was immediately integrated into daily use for scanning, heating, and cutting in an array of consumer products, manufacturing, scientific instrumentation, and medical surgery. In its solid state form it is at the heart of all optical disc devices (the CD, DVD, etc.).

The work of Pincus and Rock was encouraged

by Margaret Sanger, and funded by Katharine McCormick; both were crusaders in the feminist movement. This is a rare case of representatives of the end beneficiaries of a scientific development practically contracting the work needed to achieve it.

The rapid spread of the Pill in the 1960s had a major societal impact. It was a key player in forming women’s modern economic role, in that they could choose to delay the age at which they had children – allowing them to invest in education and other forms of human capital, as well as generally becoming more career-oriented.

By funding Apple Computer and Intel in their early days, Davis and Rock played a seminal role in the success of companies whose impact on the personal computer revolution cannot be overstressed.

One outcome of outsourcing, and the remote work models it furthered, is that startup and tech companies can tap the excellent technical workforce – especially computer programmers – in remote countries, thereby gaining talent and reducing costs.

The advent of outsourcing, especially to offshore locations, had a vast impact on the workforce in both the source and target countries, affecting tens of millions of white-collar employees.

With its high initial strength-to-weight ratio, this composite polymer has varied applications in the aerospace, automotive, aviation, sports, civil engineering, and military domains. However, it is relatively expensive when compared to similar fibers, such as glass fibers or plastic fibers.

Venture Findings — 2015-2 — History Issue 49

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DESCRIPTION

8056

LIQUID-CRYSTAL DISPLAY (LCD) 1964

A liquid-crystal display (LCD) is a display screen or device that uses the lightmodulating properties of liquid crystals. The first working LCD was developed in 1964 by George Heilmeier at the RCA Laboratories in the U.S. The Dynamic Scattering Mode (DSM) technology he used was too power-consuming, but the problem was solved in 1971, when James Fergason invented the twisted nematic effect (TN-effect). Patented in Switzerland in 1970, this required both lower operating voltage and power consumption. TN-LCDs soon replaced the DSM type.

8060

FIRSTGENERATION DESKTOP COMPUTERS 1964

A desktop computer is a non-portable personal (single-user) computer. The first desktop computer was the Programma 101, invented by the Italian engineer Pier Giorgio Perotto at Olivetti. It was launched at the 1964 New York World’s Fair, attracting major interest.

8172

BASIC PROGRAMMING LANGUAGE 1964

BASIC (Beginner’s All-purpose Symbolic Instruction Code) is a family of general-purpose, high-level programming languages whose design philosophy emphasizes ease of use. BASIC was originally invented In 1964 by John G. Kemeny and Thomas E. Kurtz, at Dartmouth College in the U.S., in order to make programming accessible to students.

8062

THE KAUFFMAN FOUNDATION 1966

The Ewing Marion Kauffman Foundation was founded as a U.S. non-profit investment vehicle and to support programs focusing on entrepreneurship and the education of children and youth.

8063

HIPPIE MOVEMENT 1967

The hippie movement was originally a youth movement which began in the U.S. in the mid-1960s before spreading to other countries around the world.

It emerged from a mistrust of politicians, opposition to the Vietnam War, and to the old order in general. The movement was characterized by rebellious experiments in lifestyle, sexual freedom, dress, music, drug use, and religious and cultural diversity.

8064

AUTOMATED TELLER MACHINE (ATM) 1967

An Automated Teller Machine (ATM) is an electronic device that enables the customers of a financial institution to perform transactions without the need for a human cashier. The first successful ATM was developed in the U.K. by Barclays Bank in 1967; it was invented by John Shepherd-Barron of printing firm De La Rue. The first machines used tokens or special cheques; later, a magnetic card came into general use for identification. The concept of a built-in PIN number was patented by Scottish inventor James Goodfellow in 1966.

8065

INTEL CORPORATION 1968

Intel Corporation is an American multinational semiconductor chip maker, and is one of the leading corporations in its industry. Intel was founded by Robert Noyce, Gordon Moore, and Andy Grove – who left Fairchild Semiconductor in 1968 – with help from venture capitalist Arthur Rock. The original intent was to focus on making semiconductor memory using polysilicon gate technology; however, the company’s main focus and growth engine soon changed to building microprocessors (which the company invented).

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IMPACT ON THE WORLD LCDs became a ubiquitous display technology, appearing in a wide range of applications – TV screens, clocks, watches, appliances of almost every kind, gym equipment, and more.

The Programma 101 played a seminal role in the arrival of the desktop machines; it inspired some features in the Hewlett-Packard 9100A, introduced in 1968 (for which HP was ordered to pay royalties to Olivetti).

These early machines were at the borderline between calculators and general purpose computers; they are best described as programmable calculators. The first true personal computers arrived in 1977 (with the Apple II and Commodore PET). In 1981, IBM launched its Personal Computer and with it the paradigm of personal computing as we know it today.

BASIC’s simplicity of use led it to play a key role in the popularization of computer programming outside of technical circles.

Versions of BASIC became widespread on microcomputers in the mid-1970s and 1980s and the language is still widely used, especially in the form of Microsoft Visual Basic.

The foundation has become a recognized think tank on entrepreneurship, innovation, and the venture capital model, as well as an enabler for young entrepreneurs.

The foundation has, as of 2013, made US$6 billion in venture capital investments, sparking growth in hundreds of new enterprises, and is credited for US$15 billion in annually recurring revenues, and the creation of 50,000 jobs.

The hippie subculture enforced the Silicon Valley spirit of individuals working as entrepreneurs, or in small groups, rather than large corporations.

The hippie attitude to the environment and the mistrust of corporations’ relationship with it is still felt today, and impacts attitudes to ‘green’ ventures.

Hippie fashion and values had a major effect on culture, influencing popular music, television, film, literature, and the arts. Since the 1960s, many aspects of hippie culture have been assimilated by mainstream society: the religious and cultural diversity espoused by the hippies has gained widespread acceptance, and Eastern philosophy and spiritual concepts have reached a larger audience.

The ATM changed the way many people around the world withdraw cash from their accounts.

Intel Capital, the company’s corporate venture arm, started in 1991. Since then US$11 billion has been invested in over 1,339 companies in 55 countries. In that timeframe, 206 portfolio companies have gone public on various exchanges around the world, and 344 were acquired or participated in a merger.

Intel played a key role in enabling the personal computer revolution, having invented in its first four years the first practical, solid state SRAM and DRAM chips, the EPROM, and the Microprocessor.

Venture Findings — 2015-2 — History Issue 51

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8066

MOON LANDING 1969

The first landing of humans on Earth’s moon was carried out by the U.S. in the Apollo 11 mission, at the end of an intense race with the U.S.S.R. The mission was defined by John F. Kennedy’s commitment in 1961 to the goal of sending an American safely to the moon before the end of the decade.

8059

PORTABLE ELECTRONIC CALCULATOR 1970

A portable electronic calculator is a small, untethered device used to perform mathematical operations. The first portable (i.e. battery-operated) calculator was the four-function Sharp QT-8B ‘Micro Compet’, introduced in 1970. By 1971 Busicom introduced the model LE-120A, the first truly pocketable calculator. In 1972 HP released the HP-35, the world’s first scientific pocket calculator.

8069

PALO ALTO RESEARCH CENTER (PARC) 1970

PARC (Palo Alto Research Center Incorporated), formerly Xerox PARC, is a research and development company in Palo Alto, California. It is renowned for having originated numerous breakthroughs in computer technology, including the graphical user interface (GUI), the laser printer, the Ethernet standard, and object-oriented programming. PARC was founded in 1970 as a division of Xerox Corporation, when its Chief Scientist Jack Goldman hired physicist George Pake to set it up. The new lab had the hiring advantage of being close to Stanford, SRI, and NASA.

8070

OPTICAL FIBERS 1970

An optical fiber is a flexible, transparent fiber made of extruded glass or plastic that can function as a waveguide to transmit light between its two ends. Optical fibers were invented in 1970 by Robert Maurer, Peter Schultz, and Donald Keck at Corning Glass. Their fibers had sufficiently low losses to allow use for data communication, ushering in the era of fiber optics. The currently used system, using glass-sheathed fibers, was developed by Gerhard Bernsee of Schott Glass in Germany in 1973.

8071

NIXON SHOCK 1971

The Nixon Shock was a series of economic measures undertaken by U.S. President Richard Nixon in 1971, which effectively brought the Bretton Woods system of 1944 to an end. The most significant measure was the unilateral cancellation of the direct convertibility of the U.S. dollar to gold. President Nixon resorted to this move because the dollar was severely overvalued and the U.S. faced a balance of payments crisis. The stock market had lost a third of its value in the preceding two years.

8073

ELECTRONIC MAIL (EMAIL) 1971

The first email message, in the accepted sense of messaging across a computer network, was sent in 1971 between two PDP-10 minicomputers at Bolt Beranek and Newman (BBN), using software developed by Ray Tomlinson. The two machines were in the same room, but their only connection was through ARPANET, the early precursor of the internet.

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The Apollo program’s achievements were a resounding tribute to U.S. science and engineering, and to the mobilization of innovation by inspired leadership from the political echelon (fuelled, as it was, by the fear of Russia’s perceived technological supremacy).

The pinnacle of the U.S. space program, Apollo had numerous spin-offs in both the civilian and military spheres. Arguably, the images of the Earth from space played an important role in humanity’s realization of the fragility of our planet, leading to the environmentalist world view.

The HP-35 dealt a deadly blow to the slide rule, which had been a standard engineering tool since at least the 18th century. This is a canonical example of the rapid destruction of an industry by a radical innovation.

Pocket calculators have become so ubiquitous that many people no longer retain the ability to do arithmetic calculations either by hand or in their heads.

It is interesting that Xerox itself failed to commercialize many of PARC’s ideas, such as the GUI (though other inventions, e.g. laser printing, were brought to market). This failure is often ascribed to the lab’s 2,000-mile distance from Xerox's East Coast headquarters. This very distance, however, was instrumental in giving PARC’s researchers great freedom in pursuing their work.

PARC’s work transformed computing. Apple, Microsoft, CISCO, and HP all used and benefited from PARC innovations; a key example is the use of the GUI by Apple Computer for its Macintosh, which was later mimicked by Microsoft for its Windows OS.

Optical fibers have facilitated the extraordinary growth in world-wide communications, which is crucial to today’s technology and venture ecosystem.

Optical fibers play a key role in modern communications.

While Nixon publicly stated his intention to resume direct convertibility of the dollar, after reforms to the Bretton Woods system had been implemented, all attempts at reform proved unsuccessful. By 1973, the Bretton Woods system was replaced de facto by a regime based on freely floating fiat currencies that remains in place to the present day. With Bretton Woods broken, the dollar devalued. The stock market rose and peaked at over 1051 at the end of 1972. The devaluation of the dollar was one cause of the 1973 oil crisis.

The wide use and misuse of email opened an opportunity to develop numerous software products to improve email and help with email overload.

Email communication is widely used in almost every aspect of business and personal lives. In fact, despite the proliferation of newer protocols (social media, instant messaging, etc.), simple email remains the most common standard of person-to-person communication. An unexpected byproduct of email is email overload, the leading cause of information overload and a source of severe harm to productivity and work/life balance among knowledge workers and managers worldwide.

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DESCRIPTION

8077

MEDICAL TOMOGRAPHY 1971

Tomography is the technique of imaging a solid body by sections (slices), through the use of any kind of penetrating wave. Common instances used in medicine are CT scans (using X-rays), MRI (using radio frequency waves), and PET (using electron-positron annihilation). The first commercially viable computerized tomography (CT) scanner was invented in the U.K. at EMI’s research laboratory in 1971. Scottish professor John Mallard demonstrated the first full-body MRI scanner at the University of Aberdeen in 1980.

8097

REMOVABLE DIGITAL STORAGE MEDIA 1971

Removable media store digital information in an easily transportable form.

The floppy disk was introduced by IBM in 1971, in 8-inch size. Subsequent generations were of 5.25 and 3.5 inches. The compact disc (CD) was invented by James T. Russell and introduced by Philips and Sony in 1982 for recorded music.

The CD-ROM, a version for digital data storage, was launched in 1984. The 2000s saw Flash memory technology gradually replacing these earlier media.

8098

COMPUTER VIRUSES AND MALWARE 1971

Malware (‘malicious software’) is software that is specifically designed to gain access to, or damage, a computer without the knowledge of its owner. Types of malware include viruses, worms, and trojans. The first virus was ‘Creeper’, an experimental self-replicating program written by Bob Thomas at BBN in 1971, which infected ARPANET. The first personal computer viruses were ‘Elk Cloner’ for the Apple II in 1981 and ‘Brain’ for the IBM PC and compatibles in 1986 (both spread by floppy disk).

8161

NASDAQ 1971

The NASDAQ Stock Market, commonly known as the NASDAQ, is an American stock exchange. The term NASDAQ is also used to refer to the NASDAQ Composite, an index of more than 3,000 stocks listed on the NASDAQ exchange that includes the world’s foremost technology and biotech giants. NASDAQ was founded in 1971 by the National Association of Securities Dealers (NASD), which divested itself of NASDAQ in a series of sales in 2000 and 2001. NASDAQ is now owned and operated by the NASDAQ OMX Group.

8067

KLEINER PERKINS CAUFIELD & BYERS (KPCB) 1972

Kleiner Perkins Caufield & Byers (KPCB) is a venture capital firm located in Menlo Park in Silicon Valley. It is considered one of the Valley’s top venture capital providers. KPCB was founded in 1972 by Eugene Kleiner, a founder of Fairchild Semiconductor, and Tom Perkins, from Hewlett-Packard’s computer hardware division. The firm specializes in investments in incubation and earlystage hi-tech companies.

8072

JAPANESE VENTURE CAPITAL 1972

The Japanese VC ecosystem took off in the early 1970s. Kyoto Enterprise Development was funded in 1972 by 43 Kyoto companies but dissolved in 1979. At the same time Nippon Enterprise Development began in Tokyo. In 1973 Nomura Securities, together with 15 shareholders, established Japan Godo Finance, a forerunner to JAFCO – Japan Associated Finance Co. Other banks and security firms followed.

8074

ATARI 1972

Atari, Inc. was a pioneer in arcade games, home video game consoles, and home computers. The company was founded in 1972 by Nolan Bushnell and Ted Dabney. Since then the company has been split and acquired a number of times.

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IMPACT ON THE WORLD Tomographic techniques, especially X-ray CT and MRI, are widely used in hospitals for medical diagnosis, staging of disease, and follow-up.

Removable storage played a major role in software distribution and data backup prior to the rise of the World Wide Web and its cloud storage. Flash devices are still in use for mobile devices, notably digital cameras.

Malware involves the extreme application of innovative software design. The source of such innovation has changed in nature over time. The drivers for the first viruses were hackers and pranksters, but today we see sophisticated malware produced by government agencies for purposes of war and security.

Malware can and does cause tremendous damage, given the connectivity of the internet. This is true in the personal, business, and military domains. A notable example is the Stuxnet computer worm that reportedly ruined almost one-fifth of Iran’s nuclear centrifuges. The advent of malware spawned an entire industry of antivirus and firewall software.

Historically, NASDAQ has been the stock market by far preferred by tech stocks, a supreme catalyst for enhanced monetization and liquidity to venture investment

NASDAQ was the world’s first electronic stock market, and the first stock market in the U.S. to start trading online.

KPCB is typical of a new wave of independent investment firms that appeared in the 1970s in Silicon Valley. Since its founding, KPCB has backed many entrepreneurs in over 600 ventures, including AOL, Amazon.com, Citrix, Compaq Computer, Genentech, Google, Intuit, Lotus, Netscape, and Sun Microsystems.

KPCB portfolio companies employ more than 250,000 people and more than 150 of the firm’s portfolio companies have gone public.

The 1973 oil crisis recession, combined with the difficulties caused by the lack of a market for unlisted securities, ended the first expansion phase of VC in Japan: the number of investments declined and the industry stagnated.

Nevertheless, of the eight firms formed in that period, six still survive to this day.

Atari was a pioneer in arcade games, home video game consoles, and home computers, and helped define the electronic entertainment industry from the 1970s to the mid-1980s.

Venture Findings — 2015-2 — History Issue 55

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DESCRIPTION

8076

HANDHELD CELLULAR PHONE 1973

The first handheld mobile cell phone was demonstrated by Motorola in 1973, when Martin Cooper called his rival at Bell Labs. It was made on a Dyna T-A-C Portable Radio Telephone System, made possible by the government releasing part of the radio frequency spectrum. The first commercial automated cellular network was launched in Japan by NTT in 1979. Several other countries then followed in the early- to mid-1980s.

8078

BLACK–SCHOLES MODEL 1973

The Black–Scholes model is a mathematical model for calculating the price of European-style options. It was developed in 1973 in the U.S. by economists Fischer Black, Robert Merton, and Myron Scholes.

8164

BARCODE 1973

A barcode is an optical machine-readable representation of data relating to the object to which it is attached. The barcode was invented in the U.S. in 1949

by Norman Woodland and Bernard Silver, who patented it in 1952. It was not until 1973 that the UPC (Universal Product Code) system developed by IBM was selected as a standard, enabling the adoption of barcodes on a wide scale.

8079

TEMASEK HOLDINGS 1974

Temasek Holdings is an investment company owned by the Government of Singapore. Temasek’s purpose was to manage the government’s assets acquired in the 10 years following Singapore’s independence and to contribute to the country’s economic development, industrialization, and financial diversification by nurturing effective and commercially driven strategic investments in and around Singapore.

8080

EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA) 1974

The Employee Retirement Income Security Act of 1974 (ERISA) is a U.S. federal law that establishes minimum standards for pension plans in private industry.

ERISA was enacted to protect the interests of employee benefit plan participants and their beneficiaries, and regulated the investments made by pension funds to reduce risk taking.

8163

KOREA TECHNOLOGY ADVANCEMENT CORPORATION (KTAC) 1974

Korea Technology Advancement Corporation (KTAC) was a venture capital firm created in 1974 by the Korean government to help commercialize R&D results from the Korean Institute of Science and Technology (KIST).

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IMPACT ON THE WORLD Cellular telephony has evolved to the point that it is no longer just a mechanism for communication: today it provides entertainment, transfers cash, and is a mobile portal to the vast resources of the World Wide Web.

Option pricing and stochastic calculus led the way to financial engineering

The Black–Scholes model is one of the most important concepts in modern financial theory, and is widely employed in practice. Its use led to a mathematical pricing in financial markets. It enabled hedging strategies, the creation of synthetic securities, algo trading, volatility strategies, and overall much more efficient and complete capital markets. Despite its usefulness, it is not perfect.

Its use led to some spectacular financial market disasters, in particular the 1987 collapse of LOR (portfolio insurance) and of Long-Term Capital

The history of the barcode is a good example of an excellent idea being delayed until suitable conditions matured for its adoption. The 1950s lacked the computer technology that would allow barcode use in retail, and it took until the 1970s for UPC to be accepted and for manufacturers to mark their products with it.

Variations of barcode technology have become ubiquitous in retail, industry, postal services, and more, facilitating efficiency and productivity in handling physical goods and printed information.

Temasek exemplifies further development in Asian investment companies in different countries.

In 1979, the Department of Labor re-interpreted the ‘prudent man’ clause of the law to allow pension fund managers to invest 10% of the fund assets in venture capital. This created an increase in available venture investments.

KTAC was the first venture capital firm in Korea.

Venture Findings — 2015-2 — History Issue 57

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DESCRIPTION

8082

MICROSOFT 1975

Microsoft is an American multinational corporation that makes computer software, consumer electronics, and personal computers and services. It is the world’s largest software maker, measured by revenues, and is particularly well known for the Windows family of operating systems and the Microsoft Office productivity suite. Microsoft was founded in 1975 by Paul Allen and Bill Gates, and has expanded to over 120,000 employees and US$86 billion revenue in 2014.

8083

PUBLIC-KEY CRYPTOGRAPHY 1976

Public-key cryptography, also known as asymmetric cryptography, is a class of cryptographic algorithms which requires two separate keys, one of which is secret (or private), and one of which is public. The public key is used to encrypt plaintext or to verify a digital signature, whereas the private key is used to decrypt ciphertext or to create a digital signature. The first published asymmetric-key cryptosystem was described in 1976 by American cryptographers Whitfield Diffie and Martin Hellman. The first practical publickey system was published in 1978 by Ron Rivest, Adi Shamir, and Leonard Adleman at MIT; the system is known as RSA, after the three inventors. It is widely used to this day.

8084

APPLE INC. 1976

Apple Inc. is an American multinational corporation that makes consumer electronics, computer software, and personal computers and services. Its best known product lines are the Mac computer, the iPod media player, the iPhone smartphone, and the iPad tablet computer. Apple was founded in 1976

by Steve Jobs and Steve Wozniak to sell then- revolutionary home computers.

It was funded by angel investor Mike Markkula, who brought financing and management expertise as CEO until 1983, and then as Apple’s Chairman until 1997. The Macintosh computer launched in 1984 and led the company to global success.

8085

GENENTECH 1976

Genentech Inc. is a biotechnology corporation which became a subsidiary of Roche in 2009. Genentech was founded in 1976 by venture capitalist Robert Swanson and biochemist Dr Herbert Boyer. Its activity is focused on recombinant DNA technology and Genentech’s first product was synthetic human insulin in 1982. Since then the company has developed many products treating with cystic fibrosis and various cancers, and is working on products to combat Alzheimer’s.

8086

DNA SEQUENCING 1977

DNA sequencing is the process of determining the precise order of nucleotides within a DNA molecule. In 1977 Fred Sanger devised, in the U.K., a method for sequencing DNA rapidly and accurately. His ‘dideoxy’ chain determination method, also known as the Sanger method, was eventually used to sequence the entire human genome (completed in 2003).

8092

APAX PARTNERS 1977

Apax Partners LLP is a U.K.-based private equity and venture capital firm. The company was formed as a merger of two entities and three key people: Alan Patricof, who founded his venture capital firm in 1969, and Sir Ronald Cohen and Maurice Tchenio, who were co-founders of Multinational Management Group in 1972.

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Microsoft’s seminal moment was the deal with IBM in 1980 to provide the MS-DOS operating system for the IBM Personal Computer, a daring move considering there was no operating system to sell at that point in time. MS-DOS, and later Windows, gave Microsoft a practical monopoly on IBM PC operating systems, catapulting the company into a dominance it capitalized on with a vengeance, making it a household name.

Microsoft’s products brought analytics, reporting, and presentation tools and power to the individual at a fraction of the cost, whilst increasing productivity.

A British mathematician, Clifford Cocks, working at the U.K.’s Government Communications Headquarters (GCHQ), also discovered the RSA method in 1973, but was not recognized as this remained classified until 1997. Such situations are not infrequent in the world of cryptography.

The essential benefit of public-key cryptography is that the sender and recipient don’t need to meet in advance in order to securely exchange the encryption key. This allows computers to exchange data securely on the internet, and is at the heart of today’s exuberant online commerce and global banking.

Apple has become identified with outstanding innovation of a kind rarely seen in a large corporation. Over its history it has repeatedly introduced novel paradigms, from the first home computer kit in 1976, to the GUI-based Macintosh in 1984, to the iPhone in 2007. This innovation, and the impeccable design execution, has placed the company at the forefront of changing consumer attitudes to digital platforms.

The impact of the iPhone, with its multi-touch UI, is especially significant, having launched a new era of ubiquitous, fun-to-use handheld usage that was not attained by the earlier BlackBerry form factor.

Genentech is a pioneer and leader in the GM-based biomedical industry.

The ability to rapidly sequence DNA was essential to the Human Genome Project, which brought the understanding of human biology and health to a completely new level, with multiple practical impacts on medicine and other spheres of life.

Apax is considered to be the first private European venture capital firm. It is one of the oldest and largest private equity firms operating on an international basis.

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8096

ORACLE 1977

Oracle is an American multinational corporation that specializes in developing and marketing computer hardware systems and enterprise software products.

It was founded in 1977 by Larry Ellison, together with Bob Miner and Ed Oates, initially under the name Software Development Laboratories (SDL).

8051

IN VITRO FERTILIZATION (IVF) 1978

In vitro fertilization (IVF) is a process by which an egg is fertilized by sperm outside the body. Min Chueh Chang, at the Worcester Foundation in the U.S., proved in 1959 that IVF was capable of proceeding to the birth of a live rabbit, a seminal discovery. His work on the conditions necessary for successful IVF led to the first human IVF-conceived birth in 1978 in the U.K.

8087

1G CELLULAR TELEPHONE NETWORK 1979

1G (or 1-G) refers to the first generation of wireless telephone technology. The first 1G network was deployed by Nippon Telegraph & Telephone (NTT) in 1979, initially in the metropolitan area of Tokyo. Within five years, the NTT network had been expanded to cover the whole population of Japan, making it the first nationwide 1G network.

8088

WORDPERFECT 1979

WordPerfect is a word processing application for personal computers.

Currently the program is owned and sold by Corel. It was originally developed in 1979 under contract at Brigham Young University for use on a Data General minicomputer. The authors retained the rights to the program, forming Satellite Systems International (SSI) to sell it under the name WordPerfect in 1980. A port to DOS followed in 1982.

8094

ELECTRONIC SPREADSHEET 1979

A spreadsheet is an interactive computer application for the organization, analysis, and storage of data in tabular form. VisiCalc, invented by Dan Bricklin in 1979, was the first spreadsheet program for personal computers. Its market dominance ended with the 1983 launch of Lotus Development Corporation’s Lotus 1-2-3 for the IBM PC, written by a former VisiCalc employee.

8089

GENERATION Y (MILLENNIALS) 1980

Generation Y (also known as Millennials) are the demographic cohort following Generation X, with birth years ranging roughly from the early 1980s to the early 2000s. It is a large cohort, being the offspring of the mid to late baby boomers.

They are technologically savvy and demanding, with high expectations of themselves and their roles. They want jobs that are meaningful with obvious progression but flexible hours. Their lives are lived in the digital connected spotlight.

8090

SMALL BUSINESS INVESTMENT INCENTIVE ACT 1980

This was a U.S. law that amended the federal securities laws to provide a new statutory framework to streamline legal structures and encourage venture capital firms to invest in small businesses. It reduced the regulation imposed by a 1940 act which ruled that venture capital firms had to register as an investment advisor on reaching a certain size, which increased the bureaucracy or prohibited certain transactions between the venture capital firm and its portfolio companies.

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Strategy lesson for market penetration: part of Oracle’s early success arose from using the C programming language to implement its products. This eased porting to different operating systems (most of which support C).

By 2013 the number of babies born as a result of IVF and related reproduction technologies had reached an estimated total of 5 million. The availability of IVF technology has raised a number of new ethical, religious, and psychological issues, which are still being debated.

NTT’s 1G network was the first, and other nations followed suit. In 1981, Nordic Mobile Telephone (NMT) launched its system in Nordic areas, whereas the first 1G network launched in the United States was Chicago-based Ameritech in 1983.

WordPerfect's downfall was that it was slow in producing a reliable version for Windows, and then Microsoft Office launched in 1990 and took over.

The application’s feature list was considerably more advanced than contemporary DOS applications like WordStar, and it rapidly displaced most other systems, especially after the 4.2 release in 1986. At the height of its popularity, in the late-1980s, it was a dominant player in the word processor market, partly because of extensive, no-cost support.

VisiCalc was the first spreadsheet program for personal computers and the killer application for the Apple II; it transformed the personal computer from a hobby item into a serious business appliance. Lotus 1-2-3’s approach to dethroning VisiCalc is of interest. Unlike the PC version of VisiCalc, 1-2-3 was written to take full advantage of the PC’s increased memory, screen, and performance; yet it deliberately attempted to remain as compatible as possible with VisiCalc to allow VisiCalc users to easily migrate to 1-2-3.

The spreadsheet is one of the all-time killer apps, and modern business users would be lost without its capabilities.

This is the current generation of entrepreneurs, starting companies where their strong digital background can be leveraged.

Inevitably, Gen Y people will inherit the world at a critical time in its history. It remains to be seen how they will handle the challenges involved.

Venture capital firms were redefined as business development firms, eliminating the need for registration and hence monitoring. The outcome is an easier process for investing in new ventures.

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8091

BAYH–DOLE ACT 1980

The Bayh–Dole Act, or Patent and Trademark Law Amendments Act, is U.S. legislation dealing with intellectual property (IP) arising from federal government-funded research. Essentially it gave U.S. universities, small businesses, and non-profits IP control of their inventions that resulted from such funding. They could sell patents or grant exclusive licenses to others. Sponsored by two senators, Birch Bayh of Indiana and Bob Dole of Kansas, the Act was adopted in 1980.

8159

THE LAPTOP COMPUTER 1981

A laptop, or a notebook, is a portable personal computer with a clamshell form factor, typically used in a mobile usage model. The earliest laptop was probably the Dulmont Magnum, launched by Dulmison Pty Ltd in Australia around 1981.

8093

SUN MICROSYSTEMS 1982

Sun Microsystems is an American multinational corporation that makes computer software and hardware, and sells information technology services.

The company was founded by Vinod Khosla, Andy Bechtolsheim, and Scott McNealy (all Stanford graduate students), and Bill Joy of Berkeley. Sun Microsystems was sold to Oracle in 2010 for US$7.4 billion.

8095

SEAVI ADVENT 1984

South East Asia Venture Investment (SEAVI) Advent was the first venture capital firm established in the South East Asia region. It is the Asian affiliate of Advent International Corporation, based in Boston, U.S. It was founded in 1984 by Peter A. Brooke, Chairman of Advent International.

8100

CISCO SYSTEMS 1984

Cisco Systems is an American multinational corporation that makes digital networking equipment. It was founded in 1984 by the husband and wife team of Len Bosack and Sandy Lerner, both from Stanford.

8101

3D PRINTING 1984

3D printing, or additive manufacturing (AM), is a process used to make a threedimensional object, in which successive layers of material are laid down under computer control. The first working 3D printer was created in 1984 by Chuck Hull of 3D Systems Corp.

8102

BUCKMINSTERFULLERENE 1985

Buckminsterfullerene (or bucky-ball) is a spherical molecule with the formula C60. It has a cage-like structure which resembles a soccer ball. The molecule was discovered in 1985 by Harold Kroto of the University of Sussex in the U.K. and Robert Curl and Richard Smalley of Rice University in the U.S.

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This act is generally considered very positive for research and the U.S. economy. Since 1980, American universities have spun off more than 4,000 companies. In fiscal year 2012 alone, US$36.8 billion of net product sales were generated, and startup companies created by 70 academic institutions employed 15,741 full-time employees. Some concerns do exist that the Act might be slowing effective product evolution and inhibiting further university studies with patents on early-stage biomedical research.

The arrival of laptops paved the road for the gradual move, completed in the 1990s, to true mobile, ‘anywhere/ anytime’ computing in the workplace.

Later they entered the education and personal entertainment segments and became ubiquitous after the Millennium.

Sun delivered significant innovations in computing.

It created the Java programming language and the Network File System (NFS), and significantly evolved key technologies including Unix, RISC processors, thin client computing, and virtualized computing. Andy Bechtolsheim became a successful angel investor and is renowned for having made the first investment in Google at its inception.

Since its founding, SEAVI Advent has invested over US$650 million into more than 115 companies in Singapore, Malaysia, Thailand, Indonesia, the Philippines, Hong Kong, and China, from early to late stage, as well as buyout and control transaction.

CISCO currently ranks as one of the top 40 U.S. companies and retains its leading network provider position as more items become internet connected.

The availability of 3D printing (and at rapidly dropping system cost) can allow small companies to affordably prototype and refine ideas for hardware devices, lowering the barrier to entry that has previously kept them in the software domain.

Since the start of the 21st century there has been a large growth in the sales of these machines, and their price has dropped substantially. Advocates of AM predict that this arc of technological development will counter globalization, as end users will do much of their own manufacturing rather than engage in trade to buy products from other people and corporations.

Theoretical predictions of bucky-ball molecules were made in the late 1960s and early 1970s but they went largely unnoticed at the time.

The discovery has led to a new field of carbon chemistry. It is possible to enclose metals and noble gases in bucky-balls, to form new superconducting materials with them, and to create new organic compounds and polymeric matter. These socalled fullerenes are useful as building blocks in nanotechnology.

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8099

DNA FINGERPRINTING 1986

DNA fingerprinting (or DNA profiling) is a technique employed by forensic scientists to identify individuals by characteristics of their DNA. The technique was first reported in 1986 by Sir Alec Jeffreys at the University of Leicester in the U.K., and is now the basis of several national DNA databases.

8103

HUMANIZED MONOCLONAL ANTIBODIES 1986

Humanized monoclonal antibodies are antibodies from non-human species that have been modified to increase their similarity to those produced naturally in humans, thus making their use in humans safe. Sir Gregory Winter, a British biochemist, invented the technique in 1986 to reduce the side-effects of nonhuman antibodies.

8104

CORONARY STENT 1986

A coronary stent is a tube-shaped device placed in the coronary arteries that supply blood to the heart. It keeps the arteries open in the treatment of coronary heart disease. The first coronary stent was inserted into a patient in 1986 by Jacques Puel and Ulrich Sigwart in France. The first expanding stent was designed by Argentinian Julio Palmaz, working with Richard Schatz in Texas, and was approved for coronary use in 1994. Johnson & Johnson licensed the technology, then bought the patent and captured 90% of the market.

8105

ARCH DEVELOPMENT CORPORATION 1986

ARCH Development Corporation was founded in 1986 by the University of Chicago and the Argonne National Laboratory as a not-for-profit organization to commercialize its technology transfers. It was headed by Steven Lazarus.

With the creation of ARCH venture partners in 1992 (keeping the University as a limited partner), it replicated its model with other universities and laboratories to become one of the largest early-stage technology venture firms.

8106

STATINS 1987

Statins are a class of drugs used to lower cholesterol levels. Much of the early research in identifying an enzyme inhibitor to reduce the production of cholesterol was done in the early 1970s by Akira Endo, a Japanese biochemist working for Sankyo. Merck & Co. followed up on Endo’s research to develop another drug from fungus growth that had less harmful side-effects. This was first marketed in 1987.

8107

WORLD WIDE WEB 1989

The World Wide Web (WWW) is an information system of interlinked hypertext documents that are accessed via the internet. Tim Berners-Lee, an English computer scientist, developed the World Wide Web in 1989 while working at the European Organization for Nuclear Research (CERN). By 1991, people outside of CERN joined the new Web community, starting it on the path to global acceptance.

8108

COLLAPSE OF COMMUNISM 1989

The collapse of Communism in Central and Eastern Europe came about through a series of revolutions, most of them non-violent, in 1989. This led to the dissolution of the U.S.S.R and its power bloc and redrew the political map of the ‘former Soviet Union’ area. The Soviet Union was struggling with the war in Afghanistan, which began in 1979. In 1985, Gorbachev withdrew and began Strategic Arms reduction talks with America. He initiated competition in business and more freedom. Because of Gorbachev’s relaxation, Eastern European countries pushed for independence. In 1989 free elections were held in Poland. Revolutions in other Eastern European countries followed. The Soviet Union had no money and little desire to crush the revolutions. In November 1989 the Berlin Wall was pulled down. In 1991 Gorbachev fell from power, and the U.S.S.R. was dissolved.

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The availability of this technique opened various practical and ethical concerns, especially as pertains to establishing paternity.

DNA fingerprinting has revolutionized forensic science, enabling positive identification and subsequent conviction of criminals based on previously inaccessible evidence. Another major impact area is establishing paternity in a variety of contexts.

These techniques are utilized in over 60% of the antibody drugs manufactured, which allows the treatment of a wide range of diseases.

Stents reduce chest pain and have been shown to improve survivability in the event of an acute myocardial infarction. By 1999, stents were used in 84% of percutaneous coronary interventions (i.e. those done via a catheter, and not by open-chest surgery).

In essence, ARCH Development Corporation was the first bespoke university venture capital platform.

Statins are the all-time, best-selling pharmaceutical.

A key factor in the growth of the Web was the decision by CERN, announced in April 1993, to release World Wide Web technology to the world on a royalty-free basis.

The Web has become the primary use model of the internet, a major business, political, and social conduit, and part of the daily life of billions of people.

Some claim that one factor in the fall of the U.S.S.R was Reagan’s Strategic Defense Initiative (‘Star Wars’), an innovative arms race that would overtax the Soviet economy. On the economic side, these events opened the Eastern Bloc to investment and private industry. Eastern European programmers became a source of cheap, competent manpower for the global software industry. The opening of borders spurred mass migration. The influx of nearly a million people from Russia to Israel, bringing a high level of education in science and technology, was a significant factor in aiding the entrepreneurial developments in the ‘startup nation’.

The dissolution of the Warsaw Pact in 1991 ended the Cold War, while the redrawn borders completely transformed the political, social, and economic realities of Europe and the world.

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8109

SHANGHAI STOCK EXCHANGE 1990

The Shanghai Stock Exchange (SSE) is one of two stock exchanges operating independently in the People’s Republic of China. Earlier versions launched in the 1920s but were shut down upon the Communist Revolution. After the Cultural Revolution ended and Deng Xiaoping rose to power in 1978, China gradually re-opened to the outside world. Its securities market evolved in parallel and on 26 November 1990, the Shanghai Stock Exchange was re-established.

8110

ARM HOLDINGS 1990

ARM Holdings plc (ARM) is a British multinational semiconductor and software design company. Arguably the best-known Cambridge (U.K).-based ‘Silicon Fen’ company, it has developed a dominant position in smart chips for mobile and tablets. ARM was founded in 1990 as Advanced RISC Machines Ltd and structured as a joint venture between Acorn Computers, Apple Computer, and VLSI Technology. It traces its roots to the development of Acorn’s first RISC chip in 1983.

8111

HUBBLE SPACE TELESCOPE 1990

The Hubble Space Telescope (HST) was launched into space telescope that was launched into low Earth orbit in 1990. HST was launched by NASA, which conceptualized it in the 1960s. It took almost three decades of technological bespoke engineering, cost overruns, and program slippages before it became a reality. Even then, a fault in part of its mirror meant the first images were not as defined as needed, a problem corrected during in-space maintenance by the Space Shuttle.

8115

GULF WAR 1990

The Gulf War (2 August 1990 to 28 February 1991), codenamed Operation Desert Shield and Operation Desert Storm, was a war waged by a coalition led by the United States against Iraq after Iraq’s invasion of Kuwait.

8165

SHENZHEN STOCK EXCHANGE 1990

The Shenzhen Stock Exchange (SZSE) is one of China’s three stock exchanges, alongside the Shanghai Stock Exchange and Hong Kong Stock Exchange. Many of the companies within this market are subsidiaries of companies in which the Chinese government maintains controlling interest. It was founded in 1990 under the ownership of the Shenzhen Securities Clearing Corporation (SSCC).

8112

LITHIUM-ION BATTERY 1991

A lithium-ion (Li-ion) battery is a rechargeable battery in which lithium ions move from the negative electrode to the positive electrode during discharge and back when charging. These batteries are in wide use in consumer electronics, with increasing applications in the military, electric cars, and aerospace. In 1991 Sony and Asahi Kasei released the first commercial lithium-ion battery.

However, considerable improvements have been made since, with work carried out by John B. Goodenough from the U.S., Rachid Yazami from Morocco. and Akira Yoshino from Japan.

8113

OPEN-SOURCE SOFTWARE 1991

Open-source software (OSS) is computer software with its source code made available under a license, giving anybody the right to study, change, and distribute the software to anyone and for any purpose. The OSS movement started in the U.S. in the 1980s, led by Richard Stallman who created the GNU project and the Free Software Foundation. In 1991 Linus Torvalds in Finland released the first version of Linux, an OSS Unix replacement operating system and one of the most recognized examples of successful open source code.

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IMPACT ON THE WORLD Shanghai Stock Exchange is the world’s sixth largest stock market by market capitalization at US$2.3 trillion as of December 2011.

ARM chips are an integral component to the members of the ‘Open Compute Project’, the industry group created by Facebook Inc. to create more efficient ways to store data online.

The company has a 95% market share of smartphone chips, and is now branching out into servers and wearable technology. Its ARM RISC architecture was also licensed out and is now embodied in the Intel/ Marvell XScale architecture.

The story of the fault in the HST’s mirror is instructive: on the one hand, it resulted from a series of manufacturing and testing errors which demonstrated Murphy’s law with a vengeance; on the other, it was corrected with a retrofitted solution in the best spirit of ingenuity and resourcefulness in the engineering profession.

Besides being a phenomenal feat of engineering, Hubble has demonstrated the existence of dark matter and accelerating expansion of the Universe.

It is fundamental to our increasing understanding of cosmology.

The war provided a testing ground for innovative U.S. military technology – especially in avionics, tracking GPS, and guided missiles.

The SZSE opened the ChiNext Board, a NASDAQ-type exchange for high-growth, hi-tech start-ups, in 2009.

Li-ion batteries provide superb energy density, enabling lightweight power sources for electric vehicles. Demand is likely to increase substantially – hence Tesla’s 2014 announcement that it plans to build a gigafactory to supply its batteries.

Open-source software has unique attributes of community, ideologically driven cooperation, a search for excellence, and opposition to ‘big business’ corporations. The outcome is the harnessing of large numbers of the best programmers to develop outstanding, cost-effective software solutions.

OSS operating systems play a major role in computing. Over 90% of the world’s fastest super computers run a variant of Linux. Widely used, a derivative Android (founded in the United States in 2003) was developed for mobile phones. Other examples of open source include the Wiki software underlying Wikipedia.

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8116

2G CELLULAR TELEPHONE NETWORK 1991

2G (or 2-G) refers to the second generation of wireless telephone technology.

Three primary benefits of 2G networks over their predecessors were: encryption of conversations; significantly more efficient spectrum usage, allowing for far greater mobile phone penetration levels, and support of data services for mobile, starting with SMS text messages. The first 2G network was commercially launched on the GSM standard in Finland by Radiolinja (now part of Elisa Oyj) in 1991. The first SMS message was sent over the Vodafone GSM network in the United Kingdom in 1992.

8118

CHINESE ECONOMIC REFORM 1991

The Chinese economic reform refers to the program of economic reforms called ‘Socialism with Chinese characteristics’ in the People’s Republic of China (PRC).

Prior to 1979, China, under the leadership of Chairman Mao Zedong, maintained a centrally planned, or command, economy. From 1979, led by Deng Xiaoping, it embarked on economic reforms which transformed the country’s economy and global position. In 1996 China’s State Council (the highest executive organ of state power) issued a document titled The National Medium- and Long-Term Program (MLP) for Science and Technology Development (2006-2020). The MLP represents an ambitious plan to modernize the structure of China’s economy by transforming it from a global center of low-tech manufacturing to a major center of innovation (by the year 2020) and a global innovation leader by 2050.

8114

YOZMA PROGRAM 1993

Yozma was a government program to encourage venture capital investments in Israel. It was founded in 1993 by Finance Minister Avraham Shochat and Chief Scientist Yigal Erlich, and implemented in 1993 to 1998. The government invested US$100 million in 10 early-stage funds, and matched private investments on favorable terms.

8117

GENETICALLY MODIFIED FOOD 1994

GM foods are produced from organisms whose DNA has been modified through genetic engineering. These techniques are primarily intended to improve resistance to pathogens and herbicides and to better nutrient profiles. Although the first genetically modified plant was produced in 1983, using an antibioticresistant tobacco plant, the commercial sale of GM foods began in 1994, when Calgene in the United States first marketed its Flavr Savr delayed ripening tomato.

8119

SONY PLAYSTATION 1994

PlayStation (PS) is a series of video game consoles created and developed by Sony Computer Entertainment. Derived from a brief collaboration with competitor Nintendo in 1988, the brand was first introduced in 1994 in Japan with the launch of the original PlayStation console. With the PlayStation, Sony stressed the 3D aspect to gaming and adopted a CD-ROM gaming model versus Nintendo’s more costly cartridge-based games. Progressive models added capabilities, like online game play, high definition, and motion sensors.

8120

AMAZON 1995

Amazon.com, Inc. is an American electronic commerce company. It was founded

by Jeff Bezos in 1994, and the site went online in 1995. Initially it only sold books, but it has diversified to sell many other products, and also makes and sells the Kindle electronic reader and is a major provider of cloud computing services.

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IMPACT ON THE WORLD As of 2014, GSM has become the default global standard for mobile communications – with over 90% market share, operating in over 219 countries and territories. The SMS standard has had a serious impact on how people communicate.

As some observers describe it, with its MLP China wants to go from a model of ‘made in China’ to ‘innovated in China’. It also seeks to sharply reduce the country’s dependence on foreign technology. This focus on homegrown innovation as a national goal is transforming China and will make it a world leader in innovation; the centralized government model is able to bring to this move resources and priorities that are not possible in other technological nations.

Since 1991, China’s economy has grown and it is now the world’s largest manufacturer, overtaking Japan (2006) and the United States in 2010. Additionally economic reforms and trade and investment liberalization have helped to transform China into a major trading power. Chinese merchandise exports rose from US$14 billion in 1979 to US$2.2 trillion in 2013, while merchandise imports grew from US$18 billion to US$1.9 trillion. From 1990 to 2013, the annual growth of China’s exports and imports averaged 18.5% and 17.3%, respectively.

Consequently, China's trade surplus has been consistently positive since 1990 and was US$261 billion in 2013.

Yozma is considered to be one of the most successful government interventions in venture.

Its format, dubbed the ‘Israeli model’, was the inspiration for national projects in other countries, such as Canada, Ireland, and Hungary.

The program gave a significant boost to the venture capital industry in Israel and created a climate that encourages investment in high-tech. There is little doubt that Israel would not enjoy its prominent position today without this program’s effects.

As of 2013, over 85% of corn, soybeans, and cotton produced in the U.S. are genetically modified.

Monsanto, a U.S. company, dominates the world’s GM food market with a share of over 80%.

PlayStation is considered an innovative and revolutionary gaming brand; with it Sony has changed gaming, distribution, sales, image, and technology. Sony has also developed a complete infrastructure including cloud streaming and an app to allow gaming on other hardware platforms.

PlayStation remains a market leader in gaming. The PS2, launched in 2000, is the best-selling gaming console unit ever with 155 million sales to the end of 2012.

Amazon revolutionized online shopping, creating digital access to a global consumer market: it has been a catalyst for internet shopping, not just for books. The company introduced multiple innovations, such as customer reviews, an affiliate program, and a self-publishing platform for Kindle e-books. Amazon’s IPO alongside AOL, eBay, Yahoo, and Priceline marked the zenith of the dotcom era.

Amazon is the largest internet-based retailer in the United States. As of 2014 it employed 154,100 people, had revenue of US$89 billion, and served customers around the world. Amazon has been responsible for other companies that have taken advantage of the digital platform in the retailing sector, such as Priceline (for travel) in 1998 and more recently Airbnb for room booking in privately owned accommodations.

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8121

CISCO INVESTMENTS 1995

Cisco Investments is the VC arm of Cisco Systems, an American multinational corporation that makes networking equipment. Housed within the firm’s Corporate Development group, the ventures it supports are selected to help drive Cisco’s growth strategy. Some help the company learn about new markets; some help Cisco influence the direction of new and potentially disruptive technologies, while others are focused on building partnerships.

8122

EBAY 1995

eBay Inc. is an American multinational corporation and e-commerce company founded by Pierre Omidyar. It provides consumer-to-consumer and business-toconsumer sales services via the internet. Its original and main business model is based on online auctions, although it also supports many other purchase modes. eBay was started in 1995, as AuctionWeb, by Pierre Omidyar and changed to its current name in 1997. In 2002 eBay acquired PayPal, thus streamlining the purchase and delivery process.

8123

DOLLY THE SHEEP 1996

Dolly, a female domestic sheep, was the first animal to be cloned from an adult somatic cell, using the process of nuclear transfer. Dolly was cloned by Ian Wilmut, Keith Campbell, and colleagues at the Roslin Institute – part of the University of Edinburgh – and the biotechnology company PPL Therapeutics, based near Edinburgh.

8129

DOTCOM BUBBLE 1997

The dotcom bubble was an historic speculative bubble covering roughly 1997 to 2000, involving a rapid rise in equity markets fueled by investments in internet-based companies. The value of equity markets grew exponentially, with the technology-dominated NASDAQ index rising from under 1,000 to 5,000 between 1995 and 2000. The bubble peaked in March 2000 with the NASDAQ at 5,408.60. The bubble was fuelled by low interest rates and significant IT investment driven by falling prices for IT goods and services. Added to this, rapid technological advances increased the obsolescence rate, necessitating earlier replacement. Firms also faced Y2K, the supposed Millennium bug. The unrealistic expectations from technology investment and internet startups led to the painful bursting of the bubble in 2000 to 2001, with the collapse of numerous dotcoms and considerable losses for investors.

8173

1997 KYOTO PROTOCOL 1997

The Kyoto Protocol is an international treaty which binds countries to reduce greenhouse gas emissions as a way of reducing global warming. Recognizing that developed countries are principally responsible for the current high levels of greenhouse gas emissions in the atmosphere, the Protocol places a heavier obligation to reduce emissions in such countries. The Protocol extends the United Nations Framework Convention on Climate Change (UNFCCC) of 1992.

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IMPACT ON THE WORLD Cisco Investments currently has an active portfolio of US$2 billion with over 80 direct investments around the world, and also holds Limited Partner positions in over 35 funds globally.

It is noteworthy that Omidyar started AuctionWeb as a hobby, hosting it on his personal website.

The success of the service was such that he had to start charging users in order to cover his growing hosting costs. A major achievement of eBay, supported by a suite of sophisticated mechanisms, was the creation of trust among total strangers doing business with each other.

eBay launched a worldwide phenomenon of personto-person (and small business retail) selling of almost everything under the sun – millions of transactions take place daily. An entirely new online ‘secondary’ retail experience was thus created.

Dolly was the first clone produced from a cell taken from an adult mammal.

After cloning was successfully demonstrated through the production of Dolly, many other large mammals were cloned, including pigs, deer, horses, and bulls. However, the process is considered too inefficient for widespread use. Cloning may have uses in preserving endangered species and could become a viable tool for reviving extinct species.

At the peak of the bubble in 1999, there were 457 IPOs, most of which were internet- and technologyrelated. Of those 457 IPOs, 117 doubled in price on the first day of trading. Once the crash hit the NASDAQ composite lost 78% of its value as it fell from 5046 in 2000 to 1114 in 2002.

The Kyoto Protocol resulted in a boost to R&D into alternative energy technologies. Various countries adopted aggressive environmental targets (e.g. the 20-20-20 targets in the EU, or the Chinese goal of attaining Grid Parity for solar energy by 2021). In order to meet such goals, governments were forced to provide subsidies for green energy R&D: the EU will spend 35% of its €70 billion R&D budget for 2014 to 2020 on meeting its climate and energy goals.

The impact of the Kyoto Protocol on the global warming problem, and especially the question of its sufficiency or otherwise, is hotly debated. However, it has at a minimum raised the subject of greenhouse gas emissions to become formally recognized by the international community.

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8124

GOOGLE 1998

Google is an American multinational corporation specializing in internet-related services and products, and famous for its web search innovations. Google was founded in 1998 by Larry Page and Sergey Brin when they were PhD students at Stanford. Their ‘Page Rank’ search algorithm was far superior to previous search tools, and allowed them to gain a dominant position in the web search engine space. Google’s business model was based on simple text ads with an auction price for key words.

8125

STEM CELL THERAPY 1998

Stem cell therapy is the use of stem cells to treat or prevent a disease or condition. Stem cells are pluripotent, i.e. they can differentiate into any cell type in the body. James Thomson, an American development biologist, derived the first human embryonic stem cell line in 1998. This technique involves the destruction of human embryos, a fact surrounded by controversy. In 2006 Shinya Yamanaka, from Japan, and John Gurdon, from the U.K., demonstrated that mature cells can be reprogrammed to become pluripotent, thus circumventing the ethical issue.

8127

PAYPAL 1998

PayPal is an American, international digital wallet service that allows payments and money transfers to be made through the internet. PayPal was created (as Confinity) in 1998 by Ken Howery, Max Levchin, Luke Nosek, and Peter Thiel. In 2000 it merged with Elon Musk’s X.com and was renamed PayPal. The business expanded rapidly because of its use on eBay, and was acquired by eBay for US$1.5 billion in 2002.

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SHENZHEN CAPITAL GROUP (SCG) 1999

Shenzhen Capital Group (SCG), formerly known as Shenzhen Venture Capital, is a state-controlled Chinese private equity firm. Founded in 1999, SCG is a dominant state-controlled venture capital private equity firm in China. Shareholders include the State-owned Assets Supervision and Administration Commission (SASAC) and several other state-owned firms. Geographically, Shenzhen Capital Group invests 30% in Shenzhen and Guangdong and 70% around the rest of China.

8152

ALIBABA GROUP 1999

Alibaba Group Holding Ltd. is a Chinese e-commerce company that provides consumer-to-consumer, business-to-consumer, and business-to-business sales services via web portals, as well as electronic payment services, a shopping search engine, and data-centric cloud computing services. The group began in 1999 when Jack Ma founded the website Alibaba.com, a business-to-business portal to connect Chinese manufacturers with overseas buyers. Its IPO in 2014 ranks as the world’s biggest, at US$25 billion.

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9/11 IMPACT ON CYBERSECURITY GROWTH 2001

The 9/11 attacks led to the growth of the cybersecurity sector. Following the attack, new areas of investment arose significantly around cybersecurity, including ensuring the security of key utilities, e.g. energy supply. The resources dedicated to security increased in multiple domains, including vulnerability to hacking, computer protection, access control, and backup. Further developments in cyber warfare have accentuated this trend in later years.

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Google is a major startup success story: it began literally in a Silicon Valley garage, and grew to be in the top three largest U.S. companies by market cap in March 2014. Google applies endless innovation to extend and augment its manifold services.

Its company culture is optimized to encourage the creation and implementation of innovative ideas by employees (for example, through the ‘20% rule’, which allows employees up to one day a week of exploratory, self-initiated work).

Google’s services engage billions of users, and have a profound impact on how people interact with information and with each other in the 21st century.

From a search engine, it has developed a suite of apps to challenge Microsoft, as well as new platforms and digital products including mobile and wearable technology.

The ability to generate stem cell lines, whether embryonic or induced, opens entire vistas of medical technologies and cures, from basic research on the function of the human body, to drug discovery and testing, and as a source of cells and tissues for transplantation and regenerative medicine.

PayPal has ‘seeded’ many other hi-tech ventures: the entrepreneurs behind PayPal have been dubbed the PayPal Mafia, having gone on to develop new ventures (including Tesla Motors, LinkedIn, SpaceX, YouTube, Yelp, and Yammer), while staying connected through joint investments or employment. They are sometimes credited with inspiring the re-emergence of consumer-focused internet companies after the dotcom bust of 2001.

PayPal’s secure payment model has greatly facilitated consumer confidence in online payments, boosting business on eBay and many other sites.

In 2013 Forbes named SCG as the number one venture capital firm in China, and its Chairman, Jin Haitao, as China’s best venture capitalist.

Since it started SCG has raised 40 governmentbacked funds totaling in excess of US$1 billion.

Additionally it manages foreign cooperation funds (Singapore, Japan, Israel) and has set up over 20 partnership funds.

Alibaba is investing heavily in American startups focused on mobile and e-commerce.

Alibaba.com, the primary company of Alibaba, is the world’s largest online business-to-business trading platform for small businesses.

The worldwide security technology and services market was forecast to reach US$67.2 billion in 2013.

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IPOD PORTABLE MEDIA PLAYER 2001

The iPod is a line of portable digital media players designed and marketed by Apple Inc. The first portable digital music player was the FlashPAC from AT&T in 1996. The first iPod was released on 23 October 2001. Typical of Apple’s closed system, it was only Mac compatible, but by their third generation iPods worked on other personal computers. Complementing the iPod, Apple’s iTunes online store launched in 2003 and enabled users to buy and store music on their iPod. Videos and films were added in 2005.

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WIKIPEDIA 2001

Wikipedia is a free-access, free-content internet encyclopedia, supported and hosted by the non-profit Wikimedia Foundation. It uses the Wiki paradigm, and is communally crowd-edited with some central supervision. Wikipedia was launched by Jimmy Wales and Larry Sanger in 2001. It is funded by donations; its fund raising in 2012 generated US$25 million from 1.2 million donors.

8134

BRIDGES VENTURES 2002

Bridges Ventures is an innovative sustainable growth investor in the U.K. that delivers both financial returns and social and environmental benefits. Bridges Ventures was co-founded by Sir Ronald Cohen in 2002. It started with a £40 million fund which was invested in businesses in some of the most deprived areas of the country. This fund generated an IRR (Internal Rate of Return) of between 15 to 20%. The company has since raised six successful funds, each with a different focus to address a funding gap or a societal issue. In addition to growth funds, Bridges has established a property and a social entrepreneur fund.

8153

SPACEX 2002

Space Exploration Technologies Corporation (SpaceX) is an American space transport services company. SpaceX was founded in 2002 by former PayPal entrepreneur and Tesla Motors CEO Elon Musk with the goal of reducing space transportation costs to enable the colonization of Mars. Its achievements on the way include the first privately-funded, liquid-fueled rocket to reach orbit (2008), the first privately-funded company to successfully launch, orbit, and recover a spacecraft (2010), and the first private company to send a spacecraft to the International Space Station (ISS) in 2012.

8128

HUMAN GENOME PROJECT 2003

The Human Genome Project (HGP) is an international scientific research project undertaken to sequence human DNA, and to identify and map all of the genes of the human genome from both a physical and functional standpoint. The US$3 billion project was formally founded in 1990 by the U.S. Department of Energy and the National Institutes of Health. In addition to the United States, the International Human Genome Sequencing Consortium comprised geneticists in the U.K., France, Australia, Japan, and other countries. The mapping of the human genome was completed in 2003.

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IMPACT ON THE WORLD The iPod/iTunes combination instantly revolutionized how music was sold and consumed; iTunes sold a million songs one week after its release. Apple rapidly became the market leader in hardware and digital music retail.

Wikipedia’s impressive growth makes it the most comprehensive knowledge store on Earth, having expanded from 20,000 articles in the English version on its first anniversary to over 4.7 million in February 2015, at which time there were also 287 non-English versions, 52 of them with over 100,000 articles. The Encyclopedia Britannica, by contrast, has 66,000 articles. The fact that Wikipedia has been proven to be equal to the Encyclopedia Britannica in accuracy is a major win for the concept of ‘The Wisdom of Crowds’.

One of the most visited sites on the web, Wikipedia has become central to humanity’s access to knowledge of every kind, including in remote domains that used to be practically impossible to find without a serious research project.

Wikipedia’s total worldwide monthly readership is approximately 495 million, 85 million of them in the U.S. (a good omen for its global reach).

The company's model of ‘Impact Investing’ is a new model for dealing with social and environmental issues, combining social impact with a financial return.

This is certainly one of the most daring ventures ever, in terms of sheer scope of vision and challenge: witness the company's ‘ultimate goal of enabling people to live on other planets’.

SpaceX intends to become a serious alternative to government-run space launches. Its effort to develop reusable rockets, if successful, will greatly reduce space mission costs, which could make viable activities that are currently prohibitively expensive.

At present SpaceX is already providing NASA with unmanned resupply missions to the ISS.

The size and complexity of this project relied on successful international cooperation on a large scale. It remains the world’s largest collaborative biological project.

Mapping the entire human genome brought the understanding of human biology and health to a completely new level. In addition to extending scientific knowledge and enabling life-saving medical applications, it has profound philosophical implications. The ethical ramifications are just as far-reaching. To appreciate the degree to which the HGP has revised our knowledge, consider that it has revealed that there are probably about 20,500 human genes, contrary to previous estimates of 50,000 to 140,000.

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SKYPE 2003

Skype is a telecommunications application and service that provides video chat and voice calls between computers and mobile devices via the internet, using a freemium business model. Skype was founded in 2003 by Janus Friis, of Denmark, and Niklas Zennstrӧm, of Sweden, in cooperation with three programmers from Estonia. In 2007 it was acquired by eBay before being partially (65%) sold to a group of venture firms in 2009. In 2011 Microsoft acquired Skype for US$8.5 billion.

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FACEBOOK 2004

Facebook is an online social networking service headquartered in the U.S. The site’s basic concept allows users to share content and media with their friends, to ‘Like’ and comment on friends’ content, and to propagate such content by sharing it. Other functionality expands what can be done and enables a variety of business activities like targeted advertising. It was launched in 2004 by Mark Zuckerberg with his fellow Harvard University students Eduardo Saverin, Andrew McCollum, Dustin Moskovitz, and Chris Hughes. Initially limited to Harvard students, it expanded gradually to other universities and finally to general worldwide use.

8138

GRAPHENE 2004

Graphene is a form of carbon structured as a one-atom-thick layer of carbon atoms that are tightly packed into a 2D honeycomb lattice. High-quality graphene is strong, light, nearly transparent, and an excellent conductor of heat and electricity. Graphene was isolated for the first time in 2004 by Andre Geim and Kostya Novoselov at the University of Manchester in the U.K.

8136

YOUTUBE 2005

YouTube is a video-sharing website headquartered in the U.S. The site allows users to upload, view, and share video content. YouTube was founded in 2005

by Chad Hurley, Steve Chen, and Jawed Karim, who were all early employees of PayPal. It began as a venture-funded technology startup, primarily from a US$11.5 million investment by Sequoia Capital. In October 2006, Google acquired YouTube for US$1.65 billion in Google stock.

8139

SEED ACCELERATOR Y COMBINATOR 2005

Y Combinator was the first seed accelerator. A seed accelerator is a company that holds short programs – typically three months – where a cohort of startup ventures receive intense mentoring, some seed funding, space, and networking support. In return the accelerator receives some equity in the ventures. Y Combinator was started in 2005 in Cambridge, Massachusetts, by Paul Graham, with co-founders Robert Morris, Trevor Blackwell, and Jessica Livingston. Its current location and focus is Silicon Valley. Y Combinator provides seed money, advice, and connections at two three-month programs per year. In exchange, they take an average of about 6% of the startup’s equity.

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Skype revolutionized telephony by providing a free basic service for audio and video communication across the globe.

As of 2012, Skype had 34% market share of international calls. Though it initially catered to calls among family and friends, Skype has been increasingly adopted by businesses.

Facebook’s history is an iconic startup story with many lessons, having started as a fun student activity and grown into a worldwide phenomenon with a market capitalization value of US$172 billion (2014). Facebook’s stroke of genius was the realization that people care about what’s related to their friends; this led to decisions such as encouraging tagging in photos, and using one’s social graph to determine what others could – and couldn’t – see on their page.

Facebook has spawned the development of many social media sites and changed the way individuals interact and how companies communicate with customers. With 1.3 billion active users in June 2014, it has a significant economic and opinion leverage, and has become a force to be reckoned with by corporations, governments, and other power wielders.

Graphene is one of the newest advanced materials discovered, and the search for practical applications – e.g. semiconductors, electronics, and battery energy – is lively and exciting. Researchers are looking at many areas, including electronics, biological engineering, filtration, lightweight/strong composite materials, photovoltaics, and energy storage.

YouTube has had a major impact on how (and how much) people consume and publish video content. It transformed video from something a handful of people would show their families to a medium that practically anyone with a smartphone can shoot and exchange globally.

The ability to share video widely and freely has had a significant impact on the flow of information.

It has transformed journalism, activism, politics, and business, putting the power to influence others with this most effective medium in the hands of the masses.

Y combinator’s model set the trend which other seeders have followed to support entrepreneurs in the U.S. Additionally the concept has been developed in Europe, with the top-rated accelerator programs, such as Seedcamp, based in London. The success of this model led to the creation of over 150 accelerators by 2013. In 2013, Y Combinator began accepting nonprofit organizations for acceleration, an interesting new concept in the venture scene.

At a conference in 2013 Paul Graham stated that 511 companies had passed through its program and that 306 have the combined value of US$13.7 billion. Notable portfolio companies include Reddit, Dropbox, and Airbnb.

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CLOUD COMPUTING 2006

Cloud computing is the practice of using a network of remote servers hosted on the internet to store, manage, and process data, rather than a local server or a personal computer. Computer scientist John McCarthy conceived the notion that ‘computation may someday be organized as a public utility’ in 1961, and the concept has been discussed in various labs in the following years. However, the lack of internet bandwidth for the masses at the time impeded the need for its development from concept to blueprint and commercial interest. In 2006 Amazon launched its Elastic Compute Cloud (EC2) as a commercial web service that allowed small companies and individuals to rent computers on which to run their own computer applications. Many other cloud services followed, including Dropbox (2007), Microsoft’s Azure platform (2008), Google Docs (2009), and Apple’s iCloud (2011).

8141

LEHMAN BROTHERS COLLAPSE 2008

Financial services firm Lehman Brothers filed for Chapter 11 bankruptcy protection on 15 September 2008. The filing remains the largest bankruptcy filing in U.S. history, with Lehman holding over US$600 billion in assets.

8148

TESLA ROADSTER 2008

The Tesla Roadster is a battery electric sports car produced by Tesla Motors in the U.S. between 2008 and 2012. The Roadster was the first highway-capable, allelectric vehicle in serial production for sale in the United States in recent times, and the first electric vehicle to have a range greater than 200 miles between charging.

8142

CHINEXT 2009

ChiNext is a NASDAQ-type exchange for high-growth, hi-tech startups launched in China in 2009 by the Shenzhen Stock Exchange.

8143

FAIR VALUE ACCOUNTING (IFRS 13) 2011

Fair Value (or mark-to-market) Accounting refers to accounting for the ‘fair value’ of an asset or liability based on the current market price, or for similar assets and liabilities, or based on another objectively assessed ‘fair’ value. It has been a part of Generally Accepted Accounting Principles (GAAP) in the United States since the early 1990s. IFRS 13, an International Financial Reporting Standard for Fair Value Measurement, was adopted by the International Accounting Standards Board on 12 May 2011.

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Cloud computing is still in active development mode. The major cloud technology developers continue to invest billions a year in cloud R&D. In 2011 Microsoft, for example, committed 90% of its US$9.6 billion R&D budget to cloud.

The development of the cloud allowed companies to significantly reduce the cost of IT hardware and software expenditure, as well as storage costs.

According to the National Venture Capital Association, capital under management in U.S. venture fell in 2008 by 20% to US$206 billion as financial institutions and corporations divested their holdings. It has since fallen further and, despite some positive signs, remained in 2012 at below 2008 levels. The number of venture capital firms actively investing fell from 627 in 2007 to 462 at the end of 2009. Whilst venture contracted, the impact of Lehman’s collapse was felt more harshly

by Private Equity. However, a lack of resources forced many governments and businesses to focus on innovation to counter recessionary trends.

The domino effect on many other financial institutions, and the subsequent bailouts by their respective nations, transferred the leverage to create an almost global macro-economic crisis. Banks were forced to de-risk and many were nationalized.

Interest rates collapsed and liquidity was pumped in to the financial markets to compensate for austere fiscal measures.

Tesla is promoting the progress of electric cars in general: CEO Elon Musk announced in 2014 that the company will allow its technology patents to be used by anyone in good faith.

Some of the key components developed by Tesla, such as the pioneering lithium ion batteries, are sold to other automakers with the aim to increase the numbers of electric vehicles (EVs) globally. Should this succeed, the potential environmental impact is obvious.

Many Chinese tech firms are choosing to list instead in the United States for several reasons, one being that ChiNext demands that firms are profitable before they list. Furthermore, the queue of firms waiting to list is long and the selection process of priority is not transparent and is subjective and aligned to China’s policy of wanting to develop a domestic venture capital market. Thus, foreign-backed companies tend to look to American exchanges.

Since its launch the exchange has attracted more than 350 firms. As of June 2014, the Total Market Capitalization Value of all companies was 95 billion RMB (approximately US$15 billion).

Fair Value Accounting moves away from historic cost accounting to the notion of an ‘exit’ price on an active market and incorporates a value based on the ‘highest and best use’ concept.

These valuation techniques are deemed more favorable for R&D projects and so may encourage additional venture and long-term investments.

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SEED ENTERPRISE INVESTMENT SCHEME (SEIS) 2012

The Seed Enterprise Investment Scheme (SEIS) was launched by the U.K. government in April 2012 as an aggressive incentive scheme to tackle the lack of available funding for start-ups SEIS is designed to encourage investors to finance startups by providing tax breaks for backing projects they may otherwise view as too risky. Aimed at retail investors, it enables them to attract significant income and capital gains tax reliefs on equity investments in qualifying companies.

8146

JUMPSTART OUR BUSINESS STARTUPS (JOBS) ACT 2012

The Jumpstart Our Business Startups Act, or JOBS Act, is a law intended to encourage funding of United States small businesses by easing various securities regulations. Enacted 5 April 2012, it is aimed at companies with gross revenues of under US$1 billion. The act includes a new exemption from the requirement to register public offerings with the Securities and Exchange Commission (SEC), for certain types of small offerings. It would allow use of the internet ‘funding portals’ registered with the government. One of the conditions of this exemption is a yearly aggregate limit on the amount each person may invest in offerings of this type, tiered by the person’s net worth or yearly income. This exemption is intended to allow a form of crowd funding.

8147

BIG DATA 2012

Big data is a broad term for the analysis of data sets so large and complex that traditional data processing applications are inadequate. This data often arises from the digital footprints we all leave as internet connectivity expands in terms of usage and applications; suitable analysis can extract extremely valuable insights and predictions from such data. In 2012, the Obama administration announced the Big Data Research and Development Initiative, to explore how big data could be used to address important problems faced by the government.

8144

REGENERATIVE MEDICINE 2013

Regenerative medicine is the process of creating living, functional tissues to repair, or replace, tissue or organ function lost due to age, disease, damage, or congenital defects. This can be done by stimulating the body to regenerate tissue, by lab-grown engineered tissue, by cellular therapies, and through artificial organs. This area of research is in a phase of major progress, and various labs are engineering implantable tissues and organs. For example, in 2013 Harald Ott and his team (U.S.) grew a rat kidney in a laboratory that functioned when transplanted back into a rat, and Takanori Takebe and his team (Japan) grew human liver tissue from stem cells that functioned when transplanted into a mouse.

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EXPANDED GENETIC CODE 2014

Expanded Genetic Code refers to the development of artificially modified genetic codes that use additional base pairs beyond the two found in nature (AT and GC), and can encode amino acids beyond the 20 used in natural protein synthesis. In 2012, a group of American scientists led by Floyd Romesberg at the Scripps Research Institute succeeded in producing an Unnatural Base Pair (UBP).

In 2014 the same team succeeded in inserting this artificial base pair into a bacterium and incorporating it in its cell replication mechanism. This is the first known example of a living organism passing along an expanded genetic code to subsequent generations.

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With a 50% tax relief against ordinary income and no capital gains tax, this program significantly boosts the U.K. attractiveness of investing in innovative ventures.

It is interesting to see a law addressing the crowdfunding model, favored by many small ventures, explicitly.

JOBS has had a major impact on the number of Initial Public Offerings (IPOs) coming from emerging growth companies, especially biotech.

The abilities demonstrated by big data research – notably regarding predicting future trends and events in the financial, political, and natural domains – make this new field highly attractive to scientists and entrepreneurs alike.

Many of the traditional technology companies are investing heavily in new organizations that are developing an ability to capture, store, or synthesize this data and derive new businesses and applications.

Regenerative medicine is showing breakthroughs at the bleeding edge of biomedical research, which will open completely new domains for exploitation by future venture.

Given the potential to cure a large range of organ failures, including those affecting the growing cohort of the elderly in the First World, regenerative medicine is poised to cause major changes. Quality and length of life will be improved, and healthcare models – with the attendant financial burdens – will change dramatically.

The creation of artificial life processes is an area of research at the frontier of biology. Research in this field will certainly expand scientific knowledge about life on Earth and alternative options for extraterrestrial life.

Expanded genetic encoding sets the stage for biosynthetic engineering and expanded protein diversity. Practical applications could include new possibilities for drug synthesis and improved medical techniques.

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Engage with The Coller History of Venture Database The CIVHOV is intended to create a lively and productive dialog across the venture ecosystem.

We invite comments, corrections, suggested new entries (be sure to explain your rationale for these), and anything else you wish to share.

Write to us at HOV@collerinstituteofventure.org

Venture Findings — 2015-2 — History Issue 83

郁金香泡沫、淘金热、互联网风投 下一个风投泡沫呢?

Tulips, Gold Rush, and DotCom Riding the Next Bubble

DAVE VALLIERE

Associate Professor of Entrepreneurship & Strategy at Ryerson University

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A bubble is a very insubstantial thing, but it often traps even the wisest investor.

Investing to launch a venture takes courage and discernment to make commitments in the face of huge uncertainties. But these uncertainties too often create a psychological environment where investors fall victim to forces of irrationality in their choice of investments and the valuations offered – forces that manifest as bubbles in investment valuations and deal volumes that are completely unsupported by the intrinsic customer value being created. Historically, investment bubbles have wreaked havoc in the venture ecosystem, even though they may temporarily benefit some weaker economies by stanching capital outflows (Caballero & Krishnamurthy, 2005). The valuation of ventures is more an art than a science. Most rational approaches to venture valuation are based on the expected value of the uncertain future cashflows that the venture will generate. It is possible, therefore, for different individuals to place a different value on the same venture because they have different expectations of future cashflows.

This arises from their varied expectations or from the availability of asymmetric

information that allows some individuals to see opportunities that others cannot.

A venture may also be valued on expected capital gains through the future sale of the firm. In most economic theories this amounts to the same thing, since the future buyer will develop their own expectations of the future cashflows (Stiglitz, 1990). But it also permits a new source of differential valuation: different expectations about the rationality of a future buyer. And herein lies

investors’ abilities to make good decisions are subject to many well-known cognitive biases that can lead to irrational outcomes. the psychological potential for bubbles. All humans have limited or ‘bounded’ rationality (Simon, 1972) that limits their time and effort in developing expectations for investment decisions. Moreover, investors’ abilities to make good decisions within these limits are subject to many well-known cognitive biases that can lead to irrational outcomes. The effects of these limitations can be seen in the

Table 1: Significant historical investment bubbles Source: Author analysis

Bubble

Context

Underlying Asset

Drivers

Tulip Mania

1637 Holland

Bulbs for new tulip varieties

Innovation, scarcity, fad/fashion

South Sea Bubble

1720 Britain

Common shares

Scarcity, misdirection about business model, active rumor, and hype

Railway Mania

1846 Britain

All railway company shares

Industrial revolution demand for transportation, oversupply, middleclass aff luence, and retail investment

California Gold Rush

1849 U.S.

Prospector stakes in real property

Media hype, unenforced property rights, new extractive technologies

Great Stock Market Crash

1929 U.S.

U.S. equities

Loose credit, over-leveraged retail investors, bank margin calls, bumper harvests driving down commodities

Japanese Asset Bubble

1991 Japan

Japanese equities

Uncontrolled money supply, investor overconfidence, drop in short-term interest rates

Dotcom Bubble

2000 Global

High-tech IPO

Internet innovation, new business models, new markets

Chinese Correction

2007 China

Chinese equities

Macroeconomic policy changes adverse to leveraged speculators

Subprime Crisis

2008 U.S.

Subprime mortgages

Active targeting of vulnerable borrowers, securitization of risks, moral hazard Venture Findings — 2015-2 — History Issue 85

periodic recurrence of investment bubbles throughout history. Table 1 lists some significant past investment bubbles, showing just how far back this phenomenon goes.

These investment bubbles suggest some form of institutional memory loss that prevents investors from learning from the experience of their predecessors. With hindsight we can see the similarities of historical bubbles, but investors somehow could not make the connection at those times. Perhaps this is because bubbles have usually been at least

“It is more the error that afflicts some of Shakespeare’s tragic figures” a generation apart and occur in different industries. Therefore each generation of investors sees itself in a unique technological cycle, unrelated to historical precedents (Perez, 2002). For this reason, bubbles are usually accompanied by some untested ‘new-era’ theory that argues that the rules of venture have changed to allow huge profits for those who are willing to ignore the past (Shiller, 2002).

Participating in a bubble appears, therefore, to be a rational decision and not a leap of blind faith. And, as the bubble grows and the media hypes early investment successes (due to the existence of ‘greater fools’), even the most skeptical investors eventually succumb to participating.

“The kind of less-than-perfectly-rational behavior that underlies the bubble is not abject foolishness… It is more the error that afflicts some of Shakespeare’s tragic figures – in the sense of having subtle weaknesses or a partial blindness to reality… exactly the kinds of shortcomings that can infect the thinking of professors, analysts, and trustees as much as anyone else’s” (Shiller, 2002: 18).

The specific mechanisms driving these irrational bubbles in valuations and investment volumes have been explored in the context of the 1990s dotcom bubble (e.g. Valliere & Peterson, 2004). The left side of Figure 1 shows how the development of early dotcom investment portfolios were shaped by VC perceptions and expectations about potential risks and returns, and how these perceptions were themselves shaped by two forces. The first was awareness of the successes or failures being experienced by other VCs: if investors continually heard

Figure 1: Rational expectations becomes irrational during bubbles Source: Author analysis

New Market

Market Hype

+ Early Market Failures

Early Market Successes

+

+

Perceived Risk

+

Increased Entry Valuations

+

Add to Investment Portfolio

Low Exit Valuation

+/– –

Perceived Return

–

+

+

Moderate Exit Valuation

+

Investor Hype

+

+

Perceived Portfolio Requirement

+ +

Investments as Business Model Bets

High

Exit Valuation +

Perceived ‘Difference’ of Internet Business Models

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+

stories about other VCs who had invested in dotcom ventures and made extraordinary gains, they were attracted to make similar investments. The second driving force was the gain and loss on their own portfolio companies in the sector. Any early successes with their own dotcom investments reinforced their positive perceptions and encouraged them to make additional similar investments.

But during the bubble period of irrational exuberance some additional forces come into play, as represented by the right side of the figure. Extensive hype by business media and grandstanding investors, coupled with the belief in a false new-era theory (signified by the rejoinder to skeptics, “You just don’t get it!”), spurred more investments and increased the hype and excitement in the market, which perversely reduced

individual investors still suffer from poor introspection and overconfidence. the skepticism of subsequent investors.

Furthermore, uncertainties about which business models would ultimately pay off drove investors to compete fiercely to have some portfolio exposure to all venture possibilities (e.g. every VC wanted an investment in the then novel idea of an ‘e-commerce pure play’), creating a scarcity that bid valuations even higher.

The ‘herd’ behavior of investors multiplied this effect. Most investors care deeply about how their choices compare to those of others, and adjust their behaviors based on these comparisons. Furthermore, they attempt to manage others’ perceptions to enhance their reputations as astute investors and thereby help them to raise additional funds from their principals (Gompers, 1996). This creates a process of emergent complexity that they cannot themselves see (Kaizoji, 2000). Blind to their collective effects, or individually shielded from losses by greater fools and driven by moral hazard, investors were incented to maximize their carried interest by bidding up valuations for ventures (Allen & Gale, 2000).

Compounding this, the new-era thinking during the dotcom bubble suppressed

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Tulips: The Flowering of a New Type of Speculation

South Sea: Creating Bubbles in Financial Investments

In the 1630s a Dutch fashion for the recently discovered tulip (newly imported from the Ottoman Empire) began to drive up prices paid by gardeners. This increase attracted speculators with no interest in gardening, but only in later selling a rare or valuable bulb to a subsequent speculator.

In the 1720s the South Sea Company in Britain encouraged, and later suffered the consequences of, a speculative bubble in its common shares.

An upward spiral was therefore created.

Those who bought had no intention of planting the bulbs and enjoying the flowers, but only to later sell at an even higher price.

This eventually attracted speculators from other countries and even spurred the formation of an early futures market where tulip contracts were traded without delivery or basic inspection of the underlying bulbs themselves.

The presence of the plague in Holland at the time may have also fostered a psychological disposition towards greater risk taking.

At the peak, a single bulb of an unusual or rare tulip variety was selling for more than ten times the average Dutch yearly wage.

Eventually, in the spring of 1637, the novelty waned, and a new flower supplanted the tulip. Since the underlying value of tulips to real gardeners could not support the inflated prices, the bubble collapsed and dramatically wiped out many speculators.

88 Venture Findings — 2015-2— History Issue

Ostensibly created as a public–private partnership to monopolize British trade with South America and reduce national debt, the company actually made most of its money by speculating on the issuance of government debt, based on insider knowledge.

But the company promoted rumors of great profits from its monopoly position over South American trade, and fed these by leveraged dealing in its own shares, thereby feeding a speculative bubble in its share price. In reality, there was very little trade between Britain and South America at the time because these seas were controlled by Spain, with whom Britain was at war.

When this deception was discovered, the bubble collapsed and vast numbers of speculators were again wiped out.

The ensuing backlash led to new regulatory restrictions on the formation of joint-stock companies and the establishment of the Bank of England as the central banker of the English economy.

many of the normal checks and balances of investment decision making. Early investment failures were not correctly interpreted as signs of irrational investment choices and valuations, but rather were incorrectly interpreted as confirmation of the truth of “not getting it” (how the fundamentals of investment valuations had supposedly changed). Perversely, these failures spurred VCs to make more investments in the sector (at whatever high valuations founders were now demanding), despite not understanding how those valuations could be justified by any rational expectation of future cashflows.

The resulting volume inflation of venture investment further amplified the effects of the existing price inflation.

Figure 1 also demonstrates why early-stage venture markets are especially vulnerable to bubble formation. Newly emerging sectors have many uncertainties about fundamental technology performance, commercialization, market acceptance, and business models.

Moreover, the high degree of innovation in new ventures makes it seem more plausible to investors that the new business models could actually unlock novel sources of value that somehow would change the fundamentals of investment valuation

(there is a small grain of truth to the charge of “not getting it” when acting as an earlystage investor). In more mature, later-stage investment markets, established information disclosure mechanisms make it very unlikely that such value innovation could occur, leaving investors much more skeptical of new-era thinking, and more reluctant to abandon proven rational approaches.

Yet in 2015 it is interesting to note how little has changed, despite our greater understanding of how venture bubbles operate. Mechanisms for institutional learning across generations, industries, and technology cycles still have not improved.

Human rationality is still bounded and subject to the same inherent cognitive biases.

And individual investors still suffer from poor introspection and overconfidence. So in the future we may surely expect more bubbles, with each appearing just different enough that the new generation of investors will, for the most part, still ignore the lessons of history.

But getting trapped in the next bubble need not be your fate, if you use your common sense. As an investor, you can resist the temptation to irrationally follow the herd, remembering that eventually there will not be any greater fool to sell to.

Venture Findings — 2015-2 — History Issue 89

As as a venture founder, you can maximize venture value by exploiting inflated valuations while they last, aligning to whatever irrational ‘new-era’ thinking is temporarily supporting the bubble.

And in either role, you can safely ride out the next bubble by adopting the ‘pickaxe’ philosophy – remembering that most of the entrepreneurs who made money during the California Gold Rush were the shopkeepers selling equipment and supplies

you can safely ride out the next bubble by adopting the 'pickaxe' philosophy to prospectors, not the individuals dreaming of finding gold. In any bubble, this strategy of cynical predation is open to those who recognize the existence and unsustainability of the bubble.

FURTHER READING Simon, H.A. (1972) “Theories of bounded rationality” in McGuire, C.B. and Radner, R. (eds.), Decision and Organization, Amsterdam, NL: NorthHolland Publishing.

Stiglitz, J.E. (1990) “Symposium on bubbles” Journal of Economic Perspectives, 4(2): 13-18.

Valliere, D. and Peterson, R. (2004) “Inflating the bubble: examining dotcom investor behavior”, Venture Capital, 6(1): 1-22.

So beware of sectors where investor hype far exceeds the intrinsic value creation of a business-model innovation (the price of a Bitcoin is finally returning to Earth), or where an exciting technological innovation has no commercial product for long periods (nanotechnology batteries have been “just around the corner” for more than 15 years now), or where no real market has been identified for the product that does exist (a socially acceptable killer-app for Google Glass remains elusive), or where the magnitude of the value creation is claimed to be huge but the specifics are always vague (remember how the Segway was going to “change everything” – a level of hype that even fooled Apple’s Steve Jobs).

The rules of venture investing never change.

So don’t throw yours away in the face of big hype. Only in this way can the destructive effects of historical venture bubbles be minimized.

To access the full list of references numbered in this article, please follow the QR Code

90 Venture Findings — 2015-2— History Issue

The African Private Equity and Venture Capital Association is the pan-African industry body which promotes and enables private investment in Africa.

Research

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Provides independent industry research

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Championing Private Investment in Africa To learn more visit www.avca-africa.org E avca@avca-africa.org | T +44 (0)20 3632 0408 Follow @AVCA_Africa

苹果公司的遗传基因： 用社交网络连接的发明家与技术

Apple’s DNA Socially Connected Inventors and Technologies

ANDRÉ VERMEIJ

Founder and Owner, Kenedict Innovation Analytics

92 Venture Findings — 2015-2— History Issue

Introduction Ever since Steve Wozniak filed the first patent in 1977, Apple has been significantly increasing its yearly patent output: while only 19 were published during the first decade after its founding in 1976, currently about 100–200 patents are published each month. (see Table 1 and Figure 1 for details). Despite Apple's usual secrecy surrounding its new product lines, this increase in patenting activity has led to wider public availability of data on Apple’s technological focus areas.

Based on this data we are able to analyze the connectivity between Apple’s patents and inventors, since its inception, to answer a variety of questions: for instance, how did technology and knowledge clusters evolve

Apple relies on a limited number of highly connected individuals within Apple? From which moment did Steve Jobs start playing a pivotal role in connecting divisions? How did the company’s Industrial Design team initially form, and how are they connected to other technology areas? To answer these questions, this article employs Social Network Analysis (see box on next page) to learn from Apple’s patent history.

The analysis shows that Apple’s technology and inventor networks grew exponentially, in line with the company’s overall growth and related increase in patenting activity over the years.

Clusters of related technologies and inventors emerged, evolved, and stabilized over time and can be related directly to many of Apple’s key product lines.

Next to this, the importance of Steve Jobs and other key inventors in specific technology areas becomes clear, showcasing the company’s reliance on a limited number of highly connected individuals who act as bridges between the technology clusters.

Finally, the results show that the structure of Apple’s technology and inventor network underwent a significant change over the years, moving from highly integrated networks towards clearly separated clusters of hardware- and software-related activities.

Table 1 – Number of Apple Patents Published between 1978 and 2014 Source: Author analysis.

Year

Number of published patents

1978

1

1979

1

1980

2

1981

1

1982

1

1983

2

1984

4

1985

7

1986

4

1987

8

1988

13

1989

8

1990

30

1991

33

1992

45

1993

59

1994

119

1995

174

1996

182

1997

142

1998

193

1999

141

2000

68

2001

68

2002

74

2003

64

2004

103

2005

124

2006

161

2007

249

2008

601

2009

613

2010

724

2011

920

2012

1244

2013

1671

2014

2231

Venture Findings — 2015-2 — History Issue 93

2,500

Figure 1 – Number of Apple patent families published between 1978 and 2014

2,000

Source: Author analysis.

1,500

1,000

500

0

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Number of Apple’s published patent families

Historical Network Analysis This article employs the principles of Social Network Analysis (SNA) to present a visual overview of Apple’s technology history. SNA focuses on the analysis and visualization of actors and their relationships in a specific context. When applied to patent data, SNA allows one to gain a unique view on the evolution of technology and knowledge clusters within an organization, technology field, or geographic area. Next to the ability to produce ‘snapshots’ of technological activity during a fixed time period, SNA also provides dynamic views of networks over time. Here, the nodes in the networks are patents and inventors, with connections between inventors based on patent co-authorship and connections between patents and inventors based on an inventor listed on a patent front page. Using patent publication years, this then allows the construction of consecutive snapshots of technological activity during Apple’s history, which are related directly to key product releases and organizational changes.

1. Apple’s Rise Apple has played a key role in advancing modern-day consumer technology through its many successful product lines in personal computers, mobile devices, and a wide array of peripheral devices. Starting as ‘Apple Computer Inc.’ upon its founding in 1976, Apple gradually became a company focused on more than computers alone. In 2007, coinciding with the release of the first iPhone, the company changed its name to ‘Apple Inc.’ and quickly generated significant market value through the introduction of various iterations of the iPod, iPhone, and iPad alongside its personal computer product offerings.

Certainly, a lot happened during almost four decades of company history. Apple has secured key market positions in a wide variety of technologies through the work of thousands of interconnected researchers, product

94 Venture Findings — 2015-2— History Issue

developers, and designers. Clusters of related technologies and inventors emerged, evolved, and disappeared, with Steve Jobs playing a pivotal role in decision-making in many of these technology areas and as a key connector between inventors.

2. Patent Data and Network Measures The networks presented in this article are based on all Apple patents published between January 1978 and October 2014. To avoid duplicate entries based on applications for the same invention in multiple countries, only representatives of so-called patent families (groups of patents disclosing the same invention in multiple countries) are included. This leads to a total dataset of 9,663 patents listing 5,272 unique inventors over the period of analysis. Inventor names were disambiguated using a pattern-matching

algorithm. Any false negatives and positives were resolved manually. This was done to avoid issues of ‘Steve Jobs’ and ‘Stephen P Jobs’ appearing as two separate inventors.

Inventors are connected in the networks whenever they appear as co-inventors on a patent; patents are connected to inventors whenever an inventor appears on that patent.

Colors were assigned to patents and inventors based on the network cluster they reside in – clusters were identified using a widely used community detection algorithm (Blondel et al., 2008). Nodes are sized based on their total number of connections (degree centrality).

Figure 2: Apple’s Technology and Inventor Network, 1978–2014 Source: Author analysis

STEVE JOBS

Venture Findings — 2015-2 — History Issue 95

3. Apple’s Full Technology Network The visualization in Figure 2 shows Apple’s full inventor and technology network covering all patents in the dataset. It shows that Apple’s technology portfolio is composed of clearly identifiable clusters (depicted by colors) of inventors and related technologies. The top part of the light blue cluster at the left consists

This leads to a total dataset of 9,663 patents listing 5,272 unique inventors over the period of analysis of Apple’s Industrial Design team, led by Senior Vice President of Design Jonathan Ive (who joined Apple in 1992). The bottom portion is mainly composed of patents and inventors relating to mobile device components. Steve Jobs (circled in Figure 2) served as the key connector between the left and right parts of the network, by connecting the dark blue cluster at the right (which consists of technology related to user interfaces and

operating systems) to the light blue design and mobile devices cluster. The red cluster at the right is largely focused on iTunes, while the small purple cluster on the far right is composed of Apple’s experts and patents in data encryption and security.

Although interesting conclusions can be drawn from ‘static’ networks based on fixed time periods such as those shown in Figure 1, dynamic network analysis spanning multiple time periods can provide a new perspective on the actual formation and decline of (sub-) networks. From a historical point of view, this provides a data-driven overview of Apple’s entire technology history.

4. Historical Evolving Technology Networks Based on key milestones in Apple’s history and overall patenting activity, networks were constructed for nine time periods to enable visual assessment of the evolution of technology and knowledge clusters.

We see Apple’s key technology areas forming and disappearing in line with its product offerings during these periods. In line with the company’s growth and related increase in patenting activity, significant growth in terms of overall network size can be

Interactive Visualizations Although the static network visualizations presented in this article provide a good initial view of the evolution of Apple’s technology and inventor networks, deeper insights with regard to the exact connections between specific technologies, inventors, and clusters can be obtained when also having the ability to interactively go through the consecutive networks. Using web technology, it is possible to generate interactive network visuals which allow users to navigate through a network and locate key nodes and connections. This allows one to relate key inventors to technologies and vice versa, and provides a basis for exploring the evolution of Apple’s technology clusters over the years.

The QR code attached to this article leads you to the interactive versions of Apple’s networks for all time periods discussed in this article

96 Venture Findings — 2015-2— History Issue

observed. From 2002 onwards, a large and densely interconnected main cluster emerges, holding many of the company’s key inventors and technologies. Figure 3 provides a visual overview of the evolution of Apple’s network by showing the consecutive networks over all time periods analyzed.

Figure 3: The evolution of Apple’s Technology Network across nine time periods Source: Author analysis

1978–1985 Wendell Sander

Steve Wozniak

1986–1996 Rod Holt

Jonathan Ive

Steve Roskowski

Steve Young

1997–2001

2002–2007 Industrial Design

Jeff Robbins

User Interface/Operating System Design Steve Jobs & Bas Ording Venture Findings — 2015-2 — History Issue 97

Figure 3 (cont): The evolution of Apple’s Technology Network based on nine time periods Source: Author analysis

2008–2009 Greg Christie & Scott Forstall

2010–2011 Bart Andre & Duncan Kerr

Steve Hotelling

2012

2013

Bas Ording

Steve Hotelling

Thomas Alsina Raymond Sepulveda

2014 Jonathan Ive & Industrial Design

Legend:

98 Venture Findings — 2015-2— History Issue

Steve Jobs

Other inventor mentioned in the article

The following sections identify the key events during each time period and relate patents and inventors to product introductions and organizational changes. Steve Jobs’ position is circled; the positions of other inventors and teams mentioned in the text are shown in Figure 3 visuals using squares 1978–1985: The Apple I, II, and III and Jobs’ resignation Although Apple’s first patent was filed by Steve Wozniak in 1977, it was not published until early 1979. The patent ‘Microcomputer for use with video display’ describes the Apple II, now famous for being the first microcomputer.

Rod Holt also played an important role at this time, being the inventor of the Apple II’s power supply. Another notable inventor is Wendell Sander, who served as the lead developer for the Apple III. Patenting activity was limited, with only 19 patents published during this period. In 1985, Steve Jobs was forced to leave Apple and founded NeXT.

Roger van Brunt. The center of the network clearly shows the emergence of multiple densely connected clusters, each representing a specific technological focus area. Many of these clusters are, however, still disconnected from each other, indicating the importance of connecting these together for Apple to fully benefit from an integrated technology portfolio.

1997–2001: Jobs’ return and the formation of the Industrial Design team Apple’s acquisition of NeXT paved the way for Steve Jobs’ return to the company’s management team. He eventually became CEO once again and initiated a significant restructuring of Apple’s product line. Going hand in hand with these changes was the formation of Apple’s Industrial Design team, which clearly started to form in the network for this time period: Jonathan Ive is joined by Bart Andre, Daniele De Iuliis, Chris Stringer, Duncan Kerr, Matt Rohrbach,

Apple’s period without Steve Jobs marked aN increase in the number of patents: four in 1986 to 182 in 1996.

This was due to a worsened relationship with Apple’s then-CEO, John Scully. Jobs was not listed on any Apple patent during this time period (1978 to 1985). Although activity was limited during his absence, this period did provide the basis for Apple’s initial success in the personal computer domain by showing a number of important connected inventions and inventors during the company’s early days.

1986–1996: Apple without Steve Jobs Apple’s period without Steve Jobs marked a significant increase in the number of patents, growing from four published patents in 1986 to 182 patents in 1996, with 675 patents published over the entire time period. Multiple technology clusters started forming, with key roles for Steve Roskowski (a hardware engineer/CPU lead) and Steve Young (responsible for the PowerBook Duo’s architecture, engineering and manufacturing). Jonathan Ive, Apple’s current Senior Vice President of Design, also makes a first appearance during this period, co-authoring patents related to a device enclosure and a monitor. Early work on the FireWire interface is also visible here, through a cluster led by Florin Oprescu and

Richard Howarth, Daniel Coster, and Eugene Wang, who would all become key members of the Industrial Design team responsible for the design of many of Apple’s new products.

Jobs also makes a first appearance as a patent inventor, working on user interfaces together with Bas Ording. The red cluster in the center of the network focuses on operating systems (coinciding with the release of OS X in 2001), pen-based input technologies (related to the Newton PDA, which was eventually discontinued in 1998), and various other technologies. Although the network clearly shows Apple’s focus areas during this time period, the overall interconnectedness between clusters is still limited, with Steve Jobs residing in a cluster outside of the network’s core.

2002–2007: Towards an interconnected technology network: iTunes, Industrial Design, and the first iPhone Apple’s patent-producing network grew significantly during this period. The networks from this time period onwards only show the largest interconnected components – to avoid clutter, disconnected nodes and small clusters are not shown. Here we see Steve Jobs

Venture Findings — 2015-2 — History Issue 99

occupying a central position in between the Industrial Design team, the iTunes cluster led

by Jeff Robbin (current (2015) Vice President of Consumer Applications), and User Interface/ Operating System design with Bas Ording, Greg Christie, Scott Forstall (the to-be iOS lead), and Imran Chaudhri. The launch of the iTunes Store in 2003 is clearly reflected in the network through the large red cluster at the right; iPod

The networks from 2012 onwards are presented based on a one-year period because of a significant surge of patent activity. technologies can be found in the bottom green cluster; the blue cluster at the bottom right shows Final Cut Pro video editing technology.

The Industrial Design team also increased its output, with a wide variety of designs to be found in their light-blue cluster. Some of the touchscreen technology for the first iPhone is also visible around Steve Jobs’ position.

The activity in this time period contributed significantly to the overall integration of Apple’s networks, with a wide variety of technologies and related product offerings becoming connected to each other.

2008–2009: Focusing on iOS and touch-based devices In line with a significant increase in patent output, the network grew to a total of 636 inventors responsible for 940 patents. Key roles can be noted for Greg Christie (then lead of the Human Interface team) and Scott Forstall (iOS lead) in the blue cluster, showcasing Apple’s focus on bringing the iOS operating system to the next level. Interestingly, the Industrial Design team is slightly separated from the rest of the network, with relatively few connections to other technology clusters. Jobs connects software/interfaces and design again, while Steve Hotelling (in yellow) is shown as highly important in the development of touch-based technology as a precursor to the introduction of the iPad in 2010.

2010–2011: iPhone 4 features, iPads, and Steve Jobs’ death The network now contains 1,150 interconnected inventors responsible for 1,276 patents. In line with the introduction of the

100 Venture Findings — 2015-2— History Issue

first two iterations of the iPad during these two years, touch-based technologies play a key role. The green cluster in the center is mainly focused on technologies related to iPods, and coincides with the release of the iPod shuffle, iPod touch, and iPod nano in 2010. The blue cluster at the right is almost fully focused on video conferencing: FaceTime, Apple’s video chat app, was introduced as a key feature of the iPhone 4 in 2010. In the Industrial Design cluster, we see Bart Andre and Duncan Kerr emerging as key connectors to other clusters.

When Steve Jobs passed away in October 2011, Tim Cook became the new CEO. The emergence of a number of other individuals with highly connected positions in product design and technology related to Apple’s product introductions during this time period can thus be clearly observed here, showing the importance of a select group of key inventors in ensuring connectedness between various technology clusters.

2012: Surge in patent activity and new product iterations The networks from this year onwards are presented based on a one-year period because of a significant surge of patent activity, coinciding with the patent litigation cases between Apple and various other smartphone manufacturers. A clear focus on new product designs can be observed in the clusters at the bottom left, in line with the introduction of new iterations of the iPad, iPhone, and MacBook, as well as the introduction of the iPad mini. Steve Jobs still appears in the network through his work on patents, which were published in 2012, for which the work took place in the two preceding years. Bas Ording solidifies his position as one of Apple’s key User Interface designers, while Steve Hotelling continues work on touch technology.

Thomas Alsina (Manager iOS Media & Apps) emerges as a key person in Jeff Robbin’s cluster.

Overall, the significant increase in patent publications during this year expresses itself in various clusters of related technologies and inventors in line with new iterations of Apple’s existing product lines.

2013: Hardware versus software R&D Interestingly, Apple’s technology network starts splitting into two distinct sub-clusters from this year onwards. This may be linked to the fact that Steve Jobs was missing as the key connector between Apple divisions. He is still listed on patents published during this

year and (together with Raymond Sepulveda in Human Interfaces) still connects the Design and iOS/Human Interfaces teams, but the interconnections are significantly less dense.

The left part of the network is mostly composed of designs, touch and display technologies, while the right part focuses on software in the broadest sense of the word. A clear distinction between hardware and software R&D can therefore be observed here. A new dark orange cluster also emerges, focusing on mobile network technologies. This is in line with the release of the iPhone 5, which included 4G support. Compared to the previous time periods, the 2013 network shows a significant shift in overall structure, now being composed of two clearly separated clusters of hardware and software technology and inventors.

2014: Design as a priority – reduced focus on software?

Jonathan Ive’s team, and the designers surrounding them in the clusters at the left in Figure 3, take up a significant portion of Apple’s patent output in this time period: the network includes a significant number of patents and inventors related to product and accessory design, but only shows a relatively limited number of patents and inventors on the software side. Changes in Apple’s iOS and User Interface teams may be one of the key reasons for this: both Bas Ording and Scott Forstall have left the company recently.

Conclusion The role of key inventors in binding Apple’s invention and technology platform together One of the main conclusions we can draw, based on this historical network analysis, is that Steve Jobs played a pivotal role in connecting Apple divisions: from the time of his return as CEO in 1997, he functioned as the hub between the company’s product design and user interface divisions. After his death, a clear distinction between hardware and software R&D activities emerged,

showcasing the importance of Jobs in binding the company together. Next to this, we clearly see the emergence of Apple’s renowned Industrial Design team, led by Jonathan Ive from 1997 onwards. This team, which has been responsible for the designs of many of the company’s most successful products, eventually consists of around 16 key members listed on a large number of design patents, with dozens of other product designers connected to them.

Various key inventors played important roles in the development of the technologies underlying Apple’s product lines. The networks show the key people responsible for all of

Steve Jobs played a pivotal role in connecting Apple's divisions from the time of his return as CEO in 1997. the company’s most important technology areas, ranging from operating systems and user interfaces to mobile technology and touch-based devices. At the same time, the network analyses show the dependency of the structure of technology clusters on the key inventors residing in them – for instance, the departure of prolific inventors such as Scott Forstall in operating systems, or Bas Ording in user interfaces, had a significant effect on the interconnections in their respective clusters. In the end, this may have also had an effect on the observed split between hardware and software. This split, however, is perhaps not necessarily related to Apple’s performance, seeing that it released record quarterly earnings during the last quarter of 2014. Here, other organizational structure or knowledge sharing practices which are not visible through patent information may play a key role.

Venture Findings — 2015-2 — History Issue 101

Further research avenues Of course, these conclusions are just the tip of the iceberg – further analysis and discussion of these networks may provide a variety of other interesting insights into the evolution of Apple from a technology and knowledge perspective.

Historical analyses such as the one presented here can also provide a basis for improved predictions of future R&D behavior or product introductions.

When specifically examining the evolution of technology clusters over a short, recent time

FURTHER READING Blondel, V.D., Guillaume, J.L., Lambiotte, R., & Lefebvre, E. (2008).

Fast unfolding of communities in large networks. Journal of Statistical Mechanics: Theory and Experiment, 10: 10008.

Historical analyses can also provide a basis for improved predictions of future R&D behavior. period, one can gain insights with regards to the expected growth of clusters in the near future.

When applying this to specific technology clusters within Apple, it is possible to generate predictions on where Apple technology might be heading in the near future. Next to this, similar historical analyses can be carried out on the regional or technological level to show the internal structure of other players active in Apple’s technology landscape. In this way, it is possible to map evolving, dynamic technology networks in highly innovative regions, or to analyze and visualize the growth of a specific technology landscape or organization. Social Network Analysis of patent data thus provides researchers and practitioners alike with a valuable tool to gain renewed insights into innovation dynamics from multiple perspectives.

To access the full list of references numbered in this article, please follow the QR Code

102 Venture Findings — 2015-2— History Issue

www.privatecapitalresearchinstitute.org

PCRI to Improve Understanding of PE/VC Industry & its Impact on the Economy Josh Lerner & Leslie Jeng The aim of the Private Capital Research Institute (PCRI), a not-for-profit corporation, led by Harvard Business School Professor Josh Lerner, is to further the understanding of private capital and its impact on society. The level of interest in alternative investments, and private capital in particular, has been particularly intense over the past several years. Returns from United States publicly traded equities and bonds, the mainstays of investment portfolios for individuals and institutions, have been weak. Concurrently, public pension funds are facing severe shortfalls, and other institutional investors—from university endowments to sovereign wealth funds—are suffering from insufficient funds to fulfill long-range commitments. As a result, institutions are increasingly looking to private capital in vestments such as venture capital, buyout and growth funds. The private equity sector has grown from $900 billion, a decade ago, to an estimated $3.2 trillion in mid-2012. Despite the fact that the global economy and individual investors are increasingly dependent on private capital, much remains poorly understood about these investments.

While there are obvious questions around investment performance, there are broader questions about the impact of private equity on the companies in which they invest, as well as on workers and other stake holders. For example, there is little understanding of the impact of private equity investments on R&D investments and employment practices. This presents a critical need for better understanding of the industry, reliable and consistent data, and independent peer-reviewed academic research to combat

misinformation that shapes public opinion and public policy. To address this gap, the PCRI has been working since 2010 to build a comprehensive research database on funds and transactions of private capital, to organize a community of scholars, to sponsor unbiased academic research on the nature and effects of private capital, and to disseminate the findings of this research to policy makers and the public at large. One of the primary barriers to high quality academic research on the private capital industry is the quality of information relating to transactions and funds. As such, the first goal of the PCRI is to build comprehensive databases on private capital funds and transactions.

The PCRI will gather data from two sources: data providers and industry participants.

Since its inception, the PCRI has come to terms with several commercial data providers and over thirty general partners have agreed in principle to contribute their data to the PCRI.

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It is important to note that the PCRI databases will be anonymized. The data will be stored on a secure server at the National Opinion Research Center at the University of Chicago. In addition, the databases will not be publicly available. Only approved academic researchers will obtain access to the databases.

Only on such a foundation of comprehensive, consistent, and credible databases that the PCRI aspires to build will the ultimate goal of a better understanding of the private capital industry be achievable.

For more information about the PCRI, please contact Josh Lerner or Leslie Jeng at info@pcrinstitute.org

大企业可以创造大企业吗？ 企业在风投市场冒险

GARY DUSHNITSKY

Associate Professor of Strategy and Entrepreneurship, London Business School

Corporate Adventure in Venture Do Giants Create Giants?

104 Venture Findings — 2015-2— History Issue

Introduction and Definition Corporate investors, also known as Corporate Venture Capitalists (CVCs), can be found in many industries and regions of the world. Yet, while the CVC phenomenon has clearly peaked over the past 10 years, it has experienced dramatic ebbs and flows since the first CVC wave of the 1960s. This article reviews the CVC

The CVC phenomenon has experienced dramatic ebbs and flows since the first CVC wave of the 1960s. phenomenon and its historical background and proceeds to highlight two critical success factors going forward.

The term corporate venture capital refers to the systematic practice of equity investment

by an established corporation in private entrepreneurial ventures. CVC programs exhibit a variety of forms and structures, yet they all share four fundamental characteristics: • First, they explicitly manage the trade-off between program (i.e. fund) level financial returns and corporate wide strategic goals.

And where some may emphasize one objective over another, other programs aim to balance the two.

• Second, they realize their goals by seeking to build and nurture a portfolio of entrepreneurial ventures. In other words, an idiosyncratic investment in an external venture does not label a firm as a CVC investor.

• Third, and relatedly, they organize their investment activity in a systematic manner such that the program is tasked with realizing the aforementioned goals.

The Most Active Corporate Venture Capital Arms in U.S. Companies – 1st Half 2014 Source: CB Insights (www.cbinsights.com)

Rank

Investor

Select H 1 2014 Deals

1

URX, Secret, Flatiron Health

2

Maxtra, Emotient, Sprinklr

3

Spero Therapeutics, Principia BioPharma, Alios BioPharma

3

Anaplan, Mulesoft, Docusign

5

Centrify, Phunware, Automated Insights

5

MapR Technologies, PLUMgrid, Ineda Systems

7

Chargepoint, Sunverge Energy, LanzaTech

7

ImaginAb, Thesan Pharmaceuticals, Aerpio Therapeutics

7

Ayla Networks, Puppet Labs, Embrane

10

TasteMade, Quad Learning, LeadiD

Venture Findings — 2015-2 — History Issue 105

• Fourth, the CVC program manages both external stakeholders (e.g. entrepreneurial ventures, VC funds, university technology transfer offices, etc.) and internal stakeholders (e.g. corporate business unit, R&D divisions, corporate strategy, etc.).

The research firm CB Insights reports that in the U.S. alone, US$12.31 billion were invested by 96 distinct corporations in 656 venture deals during 2014. Importantly, the CVC phenomenon spans the world as firms from four continents invest in innovative ventures.

The global nature of CVC is evident in the communication sector (e.g. AT&T Ventures, Deutsche Telekom’s T-Ventures, Singapore Telecom’s innov8) as well as the life sciences (e.g. Pfizer Ventures, GlaxoSmithKline’s SR One, Takeda Ventures).

Notably, the practice of CVC goes beyond these sectors. Nowadays, corporate venture capital is exercised by software and semiconductor incumbents (e.g. Google Ventures and Intel Capital, respectively), major oil & gas and transportation corporations (e.g. BP Ventures and BMW i Ventures, respectively), global agriculture and food corporations (e.g.

we have witnessed four distinct waves of corporate venture capital.

Monsanto Growth Ventures and Unilever Ventures, respectively), and leading banks and financial institutions (e.g. Citi Ventures and Visa Ventures, respectively).

1. Corporate Venture Capital Waves Historically, corporate venture capital exhibits highly cyclical patterns, both in terms of total investment amounts as well as in terms of the number of firms that engage in CVC. To date, we have witnessed four distinct waves of corporate venture capital, which we briefly review below: Wave 1: The mid-1960s saw the first wave of corporate venture capital as a confluence of two distinct factors. It was stimulated by the success of pioneering independent venture capital funds and the stellar performance of their portfolio companies. The practice then

106 Venture Findings — 2015-2— History Issue

diffused to established firms as part of the overall trend of corporate diversification in the 1960s, which was driven by excess cash flow accrued by many large U.S. corporations.

Approximately 25% of the Fortune 500 firms set up CVC programs during this period, including such firms as American Standard, Boeing, Dow, Exxon, Heinz, and W.R. Grace.

Many programs invested in external as well as internal ventures (e.g. Exxon Enterprises funded 37 technology ventures where half were external to Exxon and the remainder internally grown). The oil shock and related macroeconomic changes left many CVCinvesting firms with little excess cash flows, thus choking investment activities. The collapse of the market for IPO in 1973, and an increasing number of frictions within the CVC programs and between the programs and their parent corporations, further contributed to the termination of almost all the programs.

Wave 2: A second wave of corporate venture capital followed in the early 1980s. A significant growth in technology-driven commercial opportunities, along with favorable public markets and legislative flexibility via the Employee Retirement Income Security Act in 1979, energized the venture capital market. Again, many leading pharmaceutical companies (e.g. Johnson & Johnson), as well as the chemical and metal industries, launched corporate venture capital programs.

Technology firms (e.g. Analog Devices, Control Data Systems, and Hewlett-Packard) also initiated new venture financing efforts. The 1987 market crash led to a sharp decline in independent, as well as corporate, venture capital activity.

Wave 3: The following decade gave rise to the third CVC wave. The 1990s experienced the explosion in internet-related technologies and new venture creation, and subsequently a dramatic growth in venture capital investing. Diverse multinational corporations such as News Corp. (EPartners), GlaxoSmithKline (SR One), Texas Instrument (TI Ventures), and Dell (Dell Ventures) established corporate venture capital funds. By 2000 about 400 CVC programs accounted for approximately 15% of all venture capital investment. As with previous waves, the 2000 crisis in the public markets resulted in a dramatic contraction in venture capital activity and drove many corporations

to fold their venturing activities.

Wave 4: The recent wave of corporate venture capital has its roots in the mid-2000s. Similar to previous waves, CVC activity parallels VC investment patterns: internet-based ventures (Web 2.0) remain a major investment target, as do other traditional VC target industries such as semiconductors, telecom equipment, biotechnology, and so on. The rapid growth of the AgroTech, CleanTech, and FinTech sectors attracted independent and corporate venture capitalists alike. These patterns repeat in terms of the geographical diversity of CVC investment. For instance, a growing fraction of CVCs’ portfolios includes ventures based outside the U.S., including many ventures in developing countries.

The rapid growth of the AgroTech, CleanTech, and FinTech sectors attracted independent and corporate venture capitalists alike.

realizing their strategic goals. As a result, there are several CVC programs that have survived one or more waves. The substantial increase in program longevity is a distinctive feature of the current wave, which has many important implications to the CVC programs, their parent firms, and the innovation ecosystem as a whole.

In the past, the average life span of a CVC program was less than three years. It was often suggested that a CVC program is launched by a CEO only to be terminated by their successor.

The limited life span was viewed as a major hurdle to realizing CVC goals, whether strategic or financial. It created internal challenges in terms of attracting talent and staffing the CVC program. It also created major difficulties vis-à-vis external stakeholders: independent venture capitalists hesitated to co-invest along with an entity that may dissolve by the time a follow-on funding round is needed.

Upon further investigation, a few distinct features are notable about the current wave. It is now the case that an increasing number of corporations view corporate venture capital as a key component of their innovation strategy.

Specifically, it is part of a broader transition in corporate R&D strategies; shifting away from an exclusively internal effort and towards embracing external sources of innovations (also known as Open Innovation). As such, corporate venture capital is often viewed as a vehicle to engage and nurture a particularly innovative community: entrepreneurial ventures. The prospect of serving as a pivotal part of a firm’s innovation effort results in a fundamental change not only to the role of a CVC program within its parent corporation, but also its contribution to the broader innovation ecosystem.

2. Corporate Venture Capital Program Longevity A number of forward-looking corporations have long recognized the role of CVC in

Venture Findings — 2015-2 — History Issue 107

In a recent study, we uncovered a structural change in corporate venture capital activity.

It has to do with a substantial increase in the duration of CVC programs. In comparison to previous CVC waves, the current one features a greater number of firms that are committed

For the first time in the history of CVC, many programs persist beyond one or more CEO transitions at the parent firm. to their CVC. Specifically, the average program longevity jumped from 2.2 years in the 1990s to 3.8 years during the 2000s. The shift is associated with a significant persistence in venturing activity: the fraction of corporations that engage in equity investment as a one-off activity (i.e. invest only for a single year) is cut in half, while the fraction of those that invest for four years or longer has doubled. For the first time in the history of CVC, many programs persist beyond one or more CEO transitions at the parent firm.

The greater constancy of current CVC programs carries the potential to mitigate both internal and external challenges. The ensuing benefits are threefold: • First, Consistent CVC programs.

Consequently, the program is able to develop routines and relationships throughout the corporation. This benefits the parent firm as it realizes the innovation and commercial potential associated with investment in entrepreneurial ventures.

• Second, and relatedly, it benefits the entrepreneurial ventures. As the CVC program develops routines and practices that enable their portfolio companies to leverage corporate resources (e.g. big data availability, expertise in manufacturing scale-up, access to global distribution channels, regulatory know-how).

• Thirdly, it strengthens the venture capital ecosystem. The long-running CVC programs enjoy a reputation and a level of professionalism that facilitates syndication opportunities and introduces capital and skills in otherwise underserved segments of the venture life-cycle.

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3. Corporate Venture Capital Impact on Innovation Corporate investors strengthen the innovation ecosystem in multiple ways. Notably, corporate venture capital is associated with a unique impact on advancements in deep innovation.

Put differently, the contribution of CVC programs may go beyond adding to the total VC investment in entrepreneurial ventures.

The term ‘deep innovation’ describes inventions that are enabled by basic research or scientific breakthrough. It usually entails substantial resources and may take years (10– 15), if not decades, to materialize. The profile of cutting-edge innovation in the energy, life sciences, or space exploration sectors offers some notable illustrations. Most traditional investors, including independent venture capitalists, are deterred by the significant CapEx requirement and undefined time horizons. Corporate venture capital can make a distinct contribution in such sectors.

Consider, for example, recent evidence from the life sciences. The introduction of a cuttingedge drug faces multiple hurdles, including a high level of uncertainty, ever-increasing investment amounts, and longer time to market. Accordingly, the sector attracts fewer independent venture capitalists. Corporate venture capital proves instrumental in driving innovation in the sector. A 2013 study by Alvarez-Garrido and Dushnitsky offers evidence to that effect. It reports that CVC-backed biotechnology ventures are more innovative than their independent VC-backed peers, both in terms of startups’ scientific publication track record and their patenting output. The evidence suggests that corporate venture capitalists not only select innovative ventures but also nurture them to success. Specifically, the percentage of VC–backed ventures that evolved from

a position of innovation-laggards to that of innovation-leaders, is only half of that for CVC-backed peers. Further investigation indicates that the benefits to the startups are associated with preferential access to corporate advanced facilities, skilled R&D personnel, and manufacturing and regulatory knowhow. These are resources that are uniquely characteristic of VC funds that are part of large organizations.

Therefore, corporate venture capital can be instrumental in driving deep innovation.

If executed correctly, a CVC program has the potential of marrying the ingenuity of entrepreneurial ventures with the resources of its parent firm resources. The latter commands financial resources and, more importantly, world-class talent and infrastructure that can qualitatively advance the efforts of the former.

Conclusion: Lessons from the History of CVC In summary, corporate venture capital carries important implications to the investing firms, as well as the innovation and venture ecosystems, more broadly. For the CVC investing firms, the history of corporate venture capital offers several insights: • CVC investment is predominantly a large firm phenomenon. It is usually pursued by multi-billion dollar corporations.

• It is undertaken mainly by incumbents in turbulent industries (e.g. industries that experience significant growth in innovative patenting activity) as a response to what Harvard Business School professor Christensen labels disruptive innovation.

At the macro level, the emergence of novel technologies, and IT platforms such as GPS, internet, and mobile phones, gives rise to entrepreneurial activity, and stimulates independent venture capitalists as well as corporate investors.

• The financial markets are another critical facet of the story. They serve as catalysts for entrepreneurial activity to begin with. Moreover, they facilitate the transformation of new technology into high financial returns.

Interestingly, as CVC becomes an integral part of a firm’s innovation strategy it may be sensitive to the former factor (i.e. technologies ferment in line with a growth in innovative patenting activity) at the expense of the latter factor (i.e. financial markets).

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CVC also affords important implications to the innovation and venture ecosystems at large: • CVC investors can be particularly instrumental in driving deep innovation.

If executed correctly, a CVC program has the potential of marrying the ingenuity of entrepreneurial ventures with the resources of its parent firm resources. The latter commands financial resources and, more importantly, world-class talent and infrastructure that can qualitatively advance the efforts of the former.

• In other words, CVC investors have access to talent and infrastructure that can enable the science-to-engineering hurdle (i.e. transform cutting-edge science into commercially and socially beneficial offerings. Relatedly, they offer invaluable scale-up capabilities. Namely, corporate experience in manufacturing and managing global distribution and regulatory demands can be invaluable in bringing entrepreneurial innovation to world markets.

• Recent changes in the macro environment, including the growing globalization of venture capital activity, will likely shape the future face of corporate venture capital.

Specifically, many CVC programs are part of global corporations with a footprint in many different countries. As such, they may be well placed to identify and leverage new entrepreneurial hubs that emerge across Europe, Asia, and elsewhere.

FURTHER READING Alvarez-Garrido, E. & G. Dushnitsky. (2013) “Publications and Patents in Corporate Venture-Backed Biotech”, Nature Biotechnology, 31 (June): 495-497.

Dushnitsky, G. (2012) “Corporate Venture Capital in the 21st Century: An Integral Part of Firms’ Innovation Toolkit”, in Cumming (eds.) The Oxford Handbook of Venture Capital. Oxford: Oxford University Press.

Gompers, P. and Lerner, J. (2000) “The Determinants of Corporate Venture Capital Success: Organizational Structure, Incentives, and Complementarities”, in Morck, Randall (ed.)

Concentrated Corporate Ownership. University of Chicago Press.

These findings about CVC call for a comprehensive perspective of the venture and innovation ecosystem, one that can lead to closer collaborations between corporate investors, independent venture capitalists, and the innovative entrepreneurial ventures they back.

To access the full list of references numbered in this article, please follow the QR Code

110 Venture Findings — 2015-2— History Issue

AD

2015

“风投巨龙”的成长——中国 中国风投市场1985年至 2015年发展回顾及未来展望

MANHONG MANNIE LIU

Director and Professor at Venture Capital Research Group, Center for Fictitious Economy and Data Research, CAS

GROWING THE VENTURE DRAGON: CHINA A Regional Case Study 112 Venture Findings — 2015-2— History Issue

Introduction

The development of the Chinese venture capital market imitates the remarkable growth of China’s economy between 1985 and 2015. Venture capital was a concept that was unheard of in China in the mid1980s, when the first Chinese VC firm was established purely with government funds.

By 2006, however, the Chinese venture capital market had become the second largest in the world after the United States, and it still retains this position today.

China’s venture capital development from 2001 to 2014 parallels the country’s exceptional economic growth: its VC grew extremely fast, from US$518 million in 2001 to US$16.8 billon in 2014.

Figure 1: China’s VC Investments (2001 to 2014) Source: Zero2IPO. Note: 2001 was the first year that China’s VC data was being consistently collected.

Total investment (US$ M)

Number of deals 1,917

18,000

16,883.23

17,000

1,800

15,000 14,000

1,700

1,505

13,000

1,600 1,500

13,003.43

12,000

1,400

11,000

1,300

1,148 1,071

10,000

1,200 1,100

9,000 8,000

607

6,000 5,000

440 4210.47

4,000

1,000

0

216

226

518

418

2001

2002

117 992

253

228

1,269

1,173

324 3,247.05

1,000

7,319.56 6,600.80

817

7,000

2,000

2,000 1,900

16,000

3,000

2,100

900 800

5,386.95

700

477

600

2,700.90

400

500 300

1,777.42

200 100

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0

According to Zero2IPO and Dow Jones, China’s VC investments reached a record level in 2014

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To provide an insight into how China’s VC market became the world’s second largest, this article examines China’s venture capital market development in five different stages.

In doing so, it tells the story of the people, companies, and government initiatives that contributed to such a meteoric rise.

During this period, foreign VCs also started to operate in China. In 1985, ChinaVest became the first U.S. firm to set up office and start its investment in China. Then, in 1992, IDG Ventures set up its operation in China: IDG has been very active in China’s venture capital market, investing in outstanding startup companies and achieving exceptional returns.

Stage 1: From 1985 to 1998: GovernmentLed Development of China’s VC Market

Meanwhile, the Chinese government was also busy setting up ways to support venture capital investment, such as the 863 program, or State High-Tech Development Plan (set up in March 1986); Spark Program (high-tech to promote agricultural development), and Torch Program.

These programs were initiated by the National Science Commission and/or China Ministry of Science and Technology; to some degree, they acted as venture capital to stimulate China’s technology innovation. In addition to these programs, the State Council approved 52 National High Tech Parks to set up their venture capital funds.

In March 1985, China’s government issued the Resolution on Science and Technology System Reform, which constituted the government’s first mention of setting up venture capital firms as a means of helping to finance high-risk technology startups. In September of the same year, the first venture capital firm – China New Technology Venture Capital Investment Company (CVIC) – was established. It was this event that opened up the venture capital era in China. From 1986 to 1987, CVIC invested in 36 projects (most of the investment made as debt) in the areas of electronics, mechanical and electronic products, and fertilizers. The CVIC expanded its initial investment footprint at an extremely fast pace and by the end of 1989, CVIC had 11 branches nationwide and employed 180 people with 1.8 billion RMB invested. By 1996, its total assets had reached 10 billion RMB with controlling shares in 58 companies. But CVIC was not a typical VC firm in terms of the types of investments it made. It invested in different financial areas, such as financial securities, financial trust funds, real estates, etc., as opposed to investing in hightechnology and life sciences companies.

By the late 1990s CVIC was in financial difficulties. Apart from the original equity from the government sources, its sources of funds were from short-term or medium-term debt, whereas its investments were mostly into mid- or long-term positions. As a result, in 1998, the People’s Bank of China issued an order to close down CVIC due to it being incapable of paying off its debts.

CVIC may have been the first, but it was not the only Chinese government-funded venture capital company. In the late 1980s and early 1990s, several government VC companies were established, including the Guangzhou Technology Venture Company, Guangdong Technology Venture Capital Company, and Shanghai Technology Venture Capital Company.

114 Venture Findings — 2015-2— History Issue

Another major development for China’s VC market during this period was the (re) opening of the stock exchanges. When the first few venture capital firms started their operation, there was no stock market in China, and therefore limited exit routes for VCs. On 19 December 1990, the Shanghai Stock Exchange (SSE) had its opening ceremony and on 3 July 1991 the Shenzhen Stock Exchange (SZSE) began its operations. There were three different types of stocks initially trading on the SSE and the SZSE: State-owned Shares; Legal Person (Institutional) Shares, and Tradable Shares. The first two categories were not tradable and the entire market, in light of these restrictions, was not very active.

Beginning in 2002, the China Securities Regulatory Commission (CSRC) started to slowly allow more shares to be sold, in order to make the stock market more liquid.

Stage 2: From 1998 to 2001: Improving Policy Context for Private VC Activity Taking the environment for private VC further, in March 1998 Mr. Cheng Siwei, as the Chairman of the China National Democratic Construction Association (one of the eight minority parties or non-Communist Parties in China) and the Vice Chairman of The Chinese People’s Political Consultative Conference (CPPCC), submitted Proposal No. 1: On Speeding

up the Development of China’s Venture Capital Industry Based on Foreign Experiences to the CPPCC. The proposal made ‘venture capital’ a new financing vehicle and a popular concept in terms of promoting China’s technology innovation. From then on, Mr. Cheng Siwei came to be known as the ‘father of Chinese venture capital’.

This proposal presented the Three Steps strategy for venture capital development in China: 1. To establish some venture capital enterprises within the existing legal framework.

2. To set up venture capital funds.

3. To build a venture capital system, including China’s GEM (Growth Enterprise Market).

This proposal promoted governments at all levels (e.g. national, provincial, and city) to actively participate in venture capital development. Benefiting from this enabling

Mr. Cheng Siwei came to be known as the ‘father of Chinese venture capital’. context, from 1998 to 2001, China’s total number of venture capital companies grew from 53 to 246 and total funds increased.

The relevance of stock markets for VC exits also advanced in this period. In December 1999, the Chinese Standing Committee of the National People’s Congress (NPCSC) passed an amendment to the Company Law, allowing eligible high and new technology joint stock limited companies to enter the securities market for direct financing. This was a big step as previously only SOEs (state-owned enterprises) had been allowed to be publicly listed. From that moment, domestic venture capital companies in China were no longer run by the government, enabling many private venture capital funds to be set up by wealthy individuals and families, successful entrepreneurs, and large companies. More foreign VCs also came to China to set up branches or joint ventures in major cities such as Beijing, Shanghai, and Shenzhen.

In January 1999, the SZSE submitted a report

Venture Findings — 2015-2 — History Issue 115

to the CSRC explaining the necessity to set up China’s GEM. By October 2000, the GEM seemed to be open, which made venture capitalists throughout China exuberant. Many put a lot of money into portfolio companies, which, they hoped, would IPO on the new market.

According to Zero2IPO, during the entire 1990s there was a total of 72 new VCs set up in China: 33 between 1990 and 1997, and 39 between 1998 and 1999.

’Sea Turtles’, the name for Chinese overseas returnees, played an enormously important role in promoting China’s VC industry During this period, even though most foreign VCs were based on the U.S. model (limited partnerships), all domestic venture capital companies were structured as limited liability companies or corporations since limited partnerships were not a legal entity in China.

Though this era is dominated by the advance of the context for private VCs in China, the central government also invested significantly

Figure 2: The Number of New VCs in China (1990s) Source: Zero2IPO

New VCs in 1990s 30

25

25 20 14

15 9

10 5 0

6

0

1

5

5

5

2

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Data Source: Zero2IPO

116 Venture Findings — 2015-2— History Issue

in the asset class. In June 1999 the China Ministry of Science and Technology set up a 1 billion RMB fund – the Tech SME Innovation fund – which collaborated with the Torch Program and the 863 program. The fund financed technology startup companies in three ways: grant money; subsidies on bank loan interest, and equity investment. By 2000, the fund had invested 816 million RMB across 1,089 projects.

Stage 3: From 2001 to 2004: The Rise of Foreign VCs in China At the beginning of 2001, the Hong Kong GEM collapsed, along with other GEMs around the world, following around the world the NASDAQ dotcom crash. The Chinese government called a halt on opening up the new Chinese GEM, and the overheated Chinese VC market drastically slowed down. From 2001 to 2004, venture capital in China experienced a difficult time, while the volume and market share of foreigners in the market advanced.

The divergent operating paths persisted because of Chinese legislation and currency control. Foreign VCs often require their investee companies to set up a SPV (Special Purpose Vehicle) to receive funds in U.S. dollars. A typical SPV was usually operated like this: a domestic Chinese company ‘A’, say a technology startup, registered another company, ‘B’, in the Cayman Islands or elsewhere as an offshore holding company. B would hold controlling shares of A. Company B then acted as a legal platform to receive USD and, later, as an exit avenue for foreign investors; whereas company A was a subsidiary of B. The design of a SPV not only allows foreign VCs to invest USD into Chinese domestic startups, but also gives them a viable exit route to get their money back in USD. Years later, when the RMB started to appreciate its value, and when the Chinese SEM board and GEM opened up, some foreign VCs also set up their funds in RMB.

In 2003, the CSRC abolished its restriction on Chinese companies listing overseas. The same year, a record 48 domestic Chinese companies did IPO overseas. In line with the improved access of Chinese companies to foreign stock markets, the mix of domestic and foreign VCs in China began to balance – whereas China’s VC market had previously been overwhelmingly local. By 2004, the total funds raised by domestic VCs, mostly in RMB, was US$369 million, whereas foreign VC, mostly in USD, was US$329 million.

In this era, two operational tracks emerged: Chinese domestic VCs were mainly operated by people new to the VC field who were originally government officials, whereas foreign VCs were operated by VC professionals (mostly returned overseas Chinese students/scholars with experience in the VC field abroad) who followed internationally recognized VC rules. The returnees were called Sea Turtles (the Chinese pronunciation of overseas returnee is the same as ‘Sea Turtle’), while the domestic venture capitalists who had never studied or trained overseas were called Eupolyphaga, or ‘Ground Beetles’. The Sea Turtles played an enormously important role in promoting China’s VC industry, while many of the Ground Beetles also grew into very capable, experienced, and successful venture capitalists.

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The significance of this event is that it lured the U.S. mainstream VCs to expand their operations into China, which would alter the scope and capacity of the entire Chinese VC market.

Stage 4: From 2004 to 2009: Advances for Both Domestic and Foreign VC Activity In 2004, two non-related yet very significant events changed the entire landscape of China’s VC industry.

Soon China’s VC market became more international, as the number of USD funds was almost the same as that of RMB funds by

First of all, on 25 June 2004, the SZSE’s SME Board gave smaller enterprises, especially high-technology companies, an opportunity to go public – giving Chinese domestic VCs a markedly better environment for exits. For instance, the Shanzhen Dongshen VC company achieved a 113 times return by 2007.

in June 2004, the Silicon Valley Bank organized a delegation of Silicon Valley venture capitalists including Jim Breyer (Accel), Don Valentine (Sequoia), and John Doerr (KPCB).

The second event also occurred in June 2004, when the Silicon Valley Bank organized a delegation of Silicon Valley venture capitalists (some of whom had never visited China before) to tour China’s VC market. The delegation included famous VCs such as Jim Breyer (Accel), Don Valentine (Sequoia), and John Doerr (KPCB).

2004 (11 vs. 10), and then in 2005, the former increased to 22 whereas the latter reduced to

Figure 3: Top 50 VCs in China, Domestic vs. Foreign (2004 to 2009) Source: Author analysis

Foreign VCs Domestic VCs 50 45 40 35

30

25

31

33

19

17

2005

2006

30

33

37

25 20 15 10

20

25

5

17

13

0 2004

2007

2008

118 Venture Findings — 2015-2— History Issue

2009

seven. More dramatically, in 2005, the amount of venture capital denominated in USD reached US$3.8 billion, whereas the RMB funds fell to US$2.19 billion.

The year 2005 was a remarkable one in China’s VC history: eight companies were listed on the Shenzhen SME board; 19 companies were listed on NASDAQ, and another 15 on the Hong Kong Stock Exchange. These successful exits encouraged both domestic and foreign VCs. By the end of this period, domestic VCs regained ground as the number of domestic VCs finally caught up with their foreign counterparts in 2009. In 2008, the international financial crisis crashed USD funds while China’s number of new VC funds in RMB increased dramatically, from 29 in 2007 to 88 in 2008 and remained strong in 2009.

Another interesting observation of the shift is that in 2001 the number one VC company was IDG, the U.S. VC, but in 2010 the top slot

Figure 4: Total Market Capitalization and Number of Listed Companies on the Shanghai Stock Exchange and Shenzhen Stock Exchange, 2003 to 2012 Source: SSE (the data is only currently available up to 2012).

Number of Listed Companies in Shanghai & Shenzhen (right) Total Market Cap of Shanghai & Shenzhen (CNY 100 million, left) 3,000

350,000 2,494

300,000 250,000

2,500 2,000

200,000 1,500 150,000 1,000

100,000

500

50,000 0

0 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Venture Findings — 2015-2 — History Issue 119

Figure 5: New VC Funds in RMB vs. those in USD (2004 to 2009) Source: Zero2IPO. Note: China’s GEM stopped operating in 2013 as it modified its rules.

# of RMB funds # of USD funds $ raised for RMB funds (US$ M) $ raised for USD funds (US$ M)

4,989 4,393 88

3,848

84

3,199

3,567

2,341

369 10 2004

330 11

22 219 7 2005

27

1,092 29 29

28

774 12

2006

10 2007

was taken by Shenzhen Capital Group (SCG), a domestic VC firm. In 2013, Forbes named SCG as the number one venture capital firm in China and its Chairman, Jin Haitao, became a famous venture capitalist. The gradual opening up of the stock markets, especially the SME (2004) board and the GEM (2009), changed the landscape of China’s VC market.

Stage 5: From 2009 to 2013: Huge Growth of China’s VC Activity The global financial crisis affected China’s VC market as most of the foreign VC funds suffered difficulties in 2009. The amount of VC USD funds raised by USD-denominated funds was reduced by half, from US$4,989 million in 2008 to US$2,289 million in 2009, and the number of USD funds also dropped sharply – from 28 to 10. At the same time, domestic VCs were performing differently mainly because the GEM was officially launched in Shenzhen in 2009. For the first time, Chinese domestic VCs matched the size of their international counterparts. The Chinese domestic VCs and international VCs, which had never previously communicated, started their initial interaction and collaboration.

On the first trading day at China’s GEM all 28 stocks’ prices rose remarkably. According to SZSE regulations, if any stock price rises more

120 Venture Findings — 2015-2— History Issue

2,289

2008

2009

than 20% above its opening price that stock’s trading will be suspended; when it rises by 50%, there will be a second suspension, and when it rises by 80% a third. All 28 stocks

The amount of VC USD funds raised was reduced by half, from about US$5 Billion in 2008 to US$2.3 Billion in 2009. suffered suspensions; some had second or even third suspensions. The average price of the first trading date increased by 106%. According to Zero2IPO, of the 28 listed companies 20 of them were venture-backed. Most of the VC was invested shortly before the companies were listed, but the VCs’ returns reached 5.76 times their investments. In addition, among the 20 VC-backed companies, only three had been invested in by foreign VCs. Most had been backed by domestic VCs. From its opening in 2009, until the end of 2014, 397 companies were listed on the GEM, raising a total of US$37 billion.

Figure 6: China’s GEM, 2009 to 2014 Source: Zero2IPO. Note: China’s GEM stopped operating in 2013 as it modified its rules.

Number of listed companies Total financing (US$ M)

14,230.00 12,254.60 128 117

160 120 80

2009

12,000

5,568.32 74

2,762.41 36

40 0

15,000

9,000

0.00 0 2010

2011

2012

2013

2,935.69

6,000 3,000

2014

0

Predictions I close the article by looking ahead to what the next stage of China’s VC market development may hold. My predictions are the following: 1. Government funding will be even greater. I believe the government will strengthen its ‘National Emerging Industry VC fund of fund’ program. This Government Guidance Fund (GGF) is a special program for the government to directly put money into China’s VC market. By the end of 2014, the GGF drew a total of 57 billion RMB of private money into a total of 213 VC funds. On 15 January 2015, the Chinese government announced that it is going to set up a 40 billion RMB fund in the GGF program.

The fund is expected to attract as much as 180 billion RMB of private money into the VC market, in order to support innovation and startups.

2. China’s financial system will continue its reform. There will be more flexible financial instruments for VCs. For instance, preferred stock (which is not a legal financial tool in China) will be adopted by China’s VCs. On 21 March 2014, the SSE started the Circulate on Preferred Stock Pilot Program.

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3. The VC eco-system will be further improved. For instance, in 2014 China’s Ministry of Education requested that all major universities set up an entrepreneurship program, with new classes in venture capital and private equity. At the same time, various ‘Business Plan Competition’ events will be organized throughout the country. Entrepreneurial spirit will be further promoted. In the past, the Chinese culture has purely valued success, while looking down upon failure.

Increasingly, however, people have started to accept the idea that failure is not so bad – there is more of a feeling that it is better than having never tried.

FURTHER READING Chen, Youzhong Chen, Liu, Manhong Mannie and Liao, Junxia (2011) China Venture Capital: 20 Years' History, China Development Press.

Cheng Siwei, Report for China Venture Capital Forum 2008 (in Chinese).

Technology SME Innovation Fund 1999 Annual Report.

4. More expansion-stage and early-stage deals. China’s VCs, domestic as well as foreign, have invested more in the laterstage, especially pre-IPO deals, but I believe there will be more expansion-stage and early-stage deals. My reasoning for this is that as later-stage deals become more expensive, the space becomes more crowded. Currently, angel investment is becoming more popular and angel investors more active. I believe that the collaboration between angel investors and venture capitalists will be strengthened.

5. China’s VCs will have a stronger domestic IPO market as China’s SME board and GEM improve. The U.S. growth enterprise market is about 20% of the size of the main board market, while those in Asian countries are about 10% of their main board markets. If calculated using this 10% figure, the market value of China’s GEM is about 2 trillion RMB and there will be more venture-backed companies.

To access the full list of references numbered in this article, please follow the QR Code

122 Venture Findings — 2015-2— History Issue

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“风投之狼”的养——波的海地区公 共投资在波罗海地区风投市场的角色

SEEDING A VENTURE WOLF: BALTICS A Regional Case Study

LINAS SABALIAUSKAS

Managing Partner at TRINITI, a pan-Baltic legal practice

124 Venture Findings — 2015-2— History Issue

The Baltics: How Public Efforts Created Fertile Hunting Grounds for Private Venture Funds This article tells a story of public efforts creating a venture capital ecosystem in an emerging part of the world – the Baltic States.

The three young nations, together totalling only seven million people, managed to establish a vibrant entrepreneurial culture due to public initiatives and policies, aided by the American and European international financial institutions (IFIs), over the past 25 years. The IFIs played a crucial role in developing local capital markets, sponsoring the entrepreneurs as well as fund managers and educating venture capital players and governmental institutions. The Baltic States today have an extensive pool of entrepreneurs with innovative ideas and success stories attracting the attention of global venture capital funds. Hence, the Baltic region is an interesting case study for other regions of the world that are willing to establish successful venture capital ecosystems, and this article explores the development of the Baltics more closely.

The Baltic States: Complicated Histories Marked by Drastic Changes The Baltic States – Lithuania, Latvia, and Estonia – are located in the north-eastern region of Europe on the shores of the Baltic Sea. Despite being united by geographical proximity and a joint history of Soviet annexation in 1940, they have different local languages, religions, and cultures. Lithuania, Latvia, and Estonia reinstated their independence at almost the same time, in Spring 1990, and have undergone rapid social, economic, and political transformations that have resulted in modern parliamentary democracies, with the rule of law and Western European values as guiding principles. They have also taken the same key strategic decisions: Lithuania, Latvia, and Estonia joined the European Union and became full members of NATO in 2004, as well as becoming members of the European Monetary Union later on.

Economic Miracles: An Exemplary Way to Grow The Baltic States are relatively small (see table below) but wellfunctioning open market economies, which have witnessed an unprecedented and a remarkable growth cycle, resulting in dynamic increases in GDP. To illustrate the growth, note that the GDP per capita (nominal) in Lithuania grew from €400 in 1992 to €11,200 in 2012.

Similar growth was experienced in Latvia (from €500 to €10,900) and Estonia (from €1,000 to €13,300) according to Eurostat. The growth rates in the Baltic States reached 8% to 12% on a year-on-year basis from 2003 to 2007 and they continue to impress, with some of the fastest GDP growth rates among EU members since 2010. The Baltic economies are well integrated with the EU and Nordic economies – the banking system, public capital markets, and trade are dominated by the Nordic countries – hence the newly-coined term for the Baltics, the ‘Emerging Nordics’.

An Advantageous Basis for an Entrepreneurial Culture Lithuania, Latvia, and Estonia all have simple and competitive tax systems with flat tax rates and a positive environment for investments and venture capital, featuring some of the lowest corporate, capital gains, and dividends tax rates in the EU. There are further tax breaks offered for micro companies (e.g. 5% in Lithuania and 9% in Latvia) and for investments in R&D (e.g. a 300% deduction from profits for expenses incurred while conducting research activities and acquiring research technologies in Lithuania).

Finally, the Baltics are usually considered to have a competitive advantage due to human capital (OECD, 2004) as the educational attainment in the Baltics is rather high. In 2012, the proportion of full-time employees with a university degree was 36.29% in Lithuania, 35% in Latvia, and 29% in Estonia compared to an average of 31.4 % in the European Union. The absence of strong trade unions and flexible labor laws have enabled the Baltic States to be ranked ahead of ‘Old Europe’ on ease of doing business (Doing Business, 2015) and the level of entrepreneurship (The World Bank, 2012).

Table 1: Baltic States key statistics Data Sources: Eurostat, IMF World Economic Outlook Database 2014 and The World Bank

Lithuania

Latvia

Estonia

Population (2012)

3,043,429

2,070,371

1,294,486

GDP (nominal), billion EUR, (2012)

33.314

22.217

17.637

GDP per capita, nominal, EUR (2012)

11,200

10,900

13,300

Venture Findings— 2015-2 — History Issue 125

1. Routes to the New Hunting Grounds for Venture Funds in the Baltic States The development of the venture capital market in the Baltics between 1990 and 2014 can be divided into three stages, each with its own macro-economic characteristics and different market structure.

Stage 1: ‘Baby Steps’ The development of the venture capital markets started immediately after the reinstatement of independence by all three Baltic States in 1990. The first decade of this development, encompassing the period from 1990 to 2000, was marked by the active role of U.S. government-sponsored institutions, as well as various IFIs, such as the European Bank for Reconstruction and Development (EBRD) and the Nordic Investment Bank (NIB).

The main goal of those early sponsors was to assist the Baltic States in developing local capital markets, fostering democracy, and stabilizing the political and economic situation in the early days of the transition from a command economy to a free market economy.

One of the first funds established (1994) in the Baltic region was The Baltic American Enterprise Fund (BalAEF), capitalized with US$50 million of public sector funds through the U.S. Agency of International Development (USAID). The fund provided equity investments, mezzanine financial products, and guarantees in a range of industry sector loans in Lithuania, Latvia, and Estonia.

Another U.S.-sponsored venture capital fund, the Baltics Small Equity Fund, was established

The first decade was marked by the active role of U.S. and Eu financial institutions in 1998. This Fund was managed by the Small Enterprise Assistance Funds (SEAF), a New York-based, not-for-profit organization with the declared goal to invest in early stage small and medium enterprises (SMEs) in Estonia, Latvia, and Lithuania. The fund’s capital commitments (from the BalAEF and EBRD) amounted to US$10.7 million.

A European entity – the EBRD – was the main provider of capital for venture capital investments in the Baltics throughout the

126 Venture Findings — 2015-2— History Issue

1990s. The Baltic Investment Fund, the first venture capital fund with capital of approximately US$13 million provided by the EBRD, was established in 1995. The fund was managed by the newly established fund manager Baltic Venture Advisors (BVA). The BVA raised a follow-on fund, Baltic Investment Fund II, with approximately US$15 million committed by EBRD again in 1998. Another fund sponsored by the EBRD, the Baltic Post-Privatization Fund, was established in 1996 with US$40 million and managed by the Sweden-based, first-time fund manager Scandinavian Baltic Development Ltd. However, the EBRD and American IFIs were not the only ones investing, even in the early 1990s. Some of the more adventurous U.S. and Western European fund managers were willing to try their luck. For instance, the Baltic Fund 1, a limited partnership listed on the Dublin Stock Exchange and managed by the U.S.-registered fund manager Baltic Management, was established in 1994.

The Baltic Fund 1 was mandated to invest exclusively in Estonia, Latvia, and Lithuania, and had net assets in excess of US$33 million with reported LP commitments coming from Rockefeller & Co., Lazard Freres, and the AlIbrahim family of Saudi Arabia. Further, the Baltic Republics Fund Ltd, with an estimated €100 million in assets under management, was initiated in 1994 and advised by Trigon Capital and managed by Societe Generale Asset Management Alternative Investments S.A. until 2004.

In summary, the first phase of the Baltic venture capital industry can be characterized by experimentation – with fund managers, business owners, and governments taking the initial steps. Unfortunately, reliable performance data regarding the first funds active in the Baltics is not available. It could be presumed, though, that those funds were fully invested during the period and repaid the invested capital, with the general assessment that their performance was not very impressive. However, these first steps towards the venture capital ecosystem definitely constituted an important learning stage for the fund managers and paved the way for improved results in the future.

Stage 2: The ‘Teen Years’, 2000 to 2008 – a growth spurt which ended abruptly This phase of adolescence was marked by the rapid economic growth of all three Baltic

States, fuelled by an unlimited credit supply from foreign-owned commercial banks. This period also witnessed the strengthened local players who were beginning to compete with foreign funds and strategic investors for the privatization of state-owned companies and other investment opportunities in the market.

The EBRD was again one of the main, if not the most important, investors in the Baltic funds during this second phase.

The fund manager BVA, mentioned above (and later renamed BaltCap), had successfully closed further funds – Baltic Investment Fund III

These local groups were often adept at sourcing deals... and often showed arguably superior returns than some of their foreign-funded competitors.

(2000) and the Baltic SME Fund (2001), again with the help of the EBRD. However, due to the rather unimpressive results of the Baltic Investment Fund I and II, and the latest Baltic Investment Fund III (the Total Value PaidIn (TVPI) was around 1 for all three funds, according to the experts interviewed by the author for this article), there were obvious tensions among the local partners of BaltCap. This led to a change in the management team in 2004. The new team started raising a new fund, the Baltic Private Equity Fund, which was finally closed at €63 million in December 2007. At the same time, the new team of BaltCap completed a management buyout of the fund management company in 2007, which has been run as a fully management-owned company ever since. Moreover, the EBRD was a key sponsor of the newly established Askembla Growth Fund AB, which closed in 2002, with some investment also coming from Sweden’s SEB bank and other Nordic institutional investors.

As with the previous phase, there were U.S. and Western European fund managers active in the region, in addition to the local fund managers, which had been seeded by the EBRD since the early 2000s. Among the most noticeable funds in the Baltics at the time were the Amber Trust I.S.C.A. fund with €36 million raised in 2002,

and Amber Trust II S.C.A. with €150 million in capital commitments raised in 2005. Both Amber Trust funds were dedicated to later stage investments.

Other noticeable international players during this phase included the Texas Pacific Group (TPG), Advent International, Enterprise Investors, Mid Europa Partners, and other fund managers.

In addition, local investment groups successfully accumulated sufficient capital due to the rapid economic growth over the previous 10 years. These groups, such as Invalda, Hermis Capital, United Partners, and Eva Group, started competing for existing investment opportunities with the above-mentioned players. Technically, most of these groups couldn’t be considered fund managers, as they lacked some or all of the traditional attributes of GPs, i.e. management of the third parties’ money, certain fund structures (limited fund-life, commitments), as well as focus on a formalized fundraising process in order to raise a ‘blind’ pool of capital.

However, these local groups were often adept at sourcing deals, and the evaluation, execution, or securing of the deal-financing, and often showed arguably superior returns than some of their foreign-funded competitors.

The boom years of investments, and the development of the Baltic venture capital markets, came to an abrupt end with the global financial crisis in 2008. Plans to demonstrate outstanding returns commensurate with the extraordinary growth in the Baltics had to be postponed.

Stage 3: Additional capital injections and ‘Early Maturity’, 2008 to 2014 The third phase was shaped by the global financial crisis. Faced with the contracting credit supply in the whole of Europe, but most pronounced in the emerging European countries, EU institutions introduced various initiatives to counterbalance the grave effects of the financial crisis on the Baltic States.

One such initiative was the European Investment Fund’s (EIF) program – Joint European Resources for Micro to Medium Enterprises (JEREMIE) – which had been introduced in Lithuania and Latvia by the end of 2007. The JEREMIE program was aimed at increasing the supply of capital to micro, small, and medium enterprises, as well as fostering

Venture Findings — 2015-2 — History Issue 127

an entrepreneurial culture and creating a venture capital industry in the Baltic countries by selecting fund managers and providing them with capital (up to 100% of the fund).

This initiative helped to close the gap of access to equity capital for SMEs in Lithuania and Latvia. As of the beginning of 2013, the EIF had provided equity commitments amounting to €56.5 million to eight funds in Lithuania and €10.5 million (five funds) in Latvia (EIF Factsheet 2013). The commitments from the EIF to the (often first-time) fund managers were usually matched by the commitments from the EBRD. The first fund in the Baltics to secure a capital commitment from the EIF under the JEREMIE

It is estimated that the combined ‘dry powder’ of the four funds will be over € 300 million. initiative was BaltCap’s Private Equity Fund, which closed in 2008. Further EIF-approved funds include the Verslo Angelu Fondas I (2010), for (seed and start-up) investments; LitCapital I Fund (2011), and BaltCap’s Lithuania SME Fund (2011) which focused on later-stage venture capital investments in Lithuania. The last GP seeded by the EIF under the JEREMIE program in Lithuania was the newly formed Practica Capital, which launched two funds in 2012: the Practica Seed Capital Fund and Practica Venture Capital Fund.

The Latvian venture capital market also greatly benefited from the JEREMIE program.

Together with the EIF, the Latvian Guarantee Agency selected BaltCap, which successfully closed the Latvia Venture Capital Fund in 2010.

The EIF selected a further GP – Imprimatur Capital – to manage a seed fund and a venture fund for investments in Latvia in 2010. The Latvian Guarantee Agency successfully arranged a further round of capital dedicated to venture capital in 2013, when some €30 million was committed to three GPs (ZGI Capital, Expansion Capital, and FlyCap), seeding their respective venture capital funds in Summer 2013.

The successful initiatives of the Latvian and Lithuanian governments to secure capital for

128 Venture Findings — 2015-2— History Issue

SMEs and create a venture capital industry received another boost in 2012, when the EIF launched the Baltic Innovation Fund (BIF), a fund-of-funds established in co-operation with the Governments of Lithuania, Latvia, and Estonia. The BIF had €100 million under management and was aimed at boosting equity investments into high-growth SMEs located in the Baltic States, as well as attracting at least €100 million from private investors, thereby mobilizing further capital for venture capital investments in the Baltic States.

By the end of 2014, the EIF had approved investments into four pan-Baltic GPs from the BIF. The last investment approvals from the BIF are still pending, but it is presumed that the four funds seeded from the BIF will make a significant contribution to the capital supply in the Baltic venture capital markets. It is estimated that the combined ‘dry powder’ of the four funds will be over €300 million.

Furthermore, preparations for the new JEREMIE programs are already underway with an additional €60 million (€20 million in each country) of capital dedicated to the teams of venture capital fund managers to be selected in 2015. In total, it is estimated that up to €500 million of capital will be available for venture capital and private equity investments in the Baltics over the next few years due to the current initiatives of the Baltic governments and IFIs. This should further boost venture capital activities in the Baltics – such a large pool of capital available to Baltic entrepreneurs is so far unprecedented; furthermore, never before have entrepreneurs in the Baltics had such a large number of sources of capital competing to invest in their companies at various stages of the company development cycle.

2. Product of Public Support – Experienced Fund Managers and a Flourishing Entrepreneurial Culture As a result of joint efforts by the EIF, EBRD, and the national governments over the last two decades, the three Baltic States are an emerging venture capital playground with an already vibrant entrepreneurial culture, interesting start-ups, and seed and venture capital available to nourish Baltic companies.

The Baltic States have thousands of start-ups, a number of serial entrepreneurs, suitable supporting infrastructure and global success

stories such as Skype, TransferWise, GetJar, GrabCAD, YPlan, and Vinted.

The region has also raised a number of experienced fund managers, with approximately 30 domestic GPs (see Figure below for names of some of these firms) active in the Baltic States today. Furthermore, a significant part of currently active fund managers grew from the GPs previously initiated by the IFIs. Examples of such development include the former management team of BalAEF (later reorganized into Hanseatic Capital), currently co-managing Practica Capital and BPM Capital.

Furthermore, IFIs encouraged local LPs to start investing in local venture capital funds, resulting in a unique situation among the Central and Eastern European countries, which is clearly a promising feature of a maturing market.

Figure 1: Baltic GPs active since 1990 (by date of establishment) Sources: Preqin, CAPITAL IQ, The National Venture Capital Association, public information

BPM Capital PE&VC* FlyCap VC Practica Capital VC Rubylight Technology VC United Partners Asset Management PE&VC Redgate Capital PE Eva Group PE&VC Ambient Sound Investments VC Hanseatic Capital PE&VC Strata PE&VC Askembla Asset Management PE SB Investment Management PE Small Enterprise Assistance Fund PE&VC* Scandinavian Baltic Development PE&VC*** Cresco PE&VC Baltic Management PE&VC** Invalda PE&VC 1991

2003 2002 2002 2002 2002 2001 2000 2000 1998 1997 1996 1995 1995 1994 1994 1994

2014 2013 2013 2013 2011 2011 2011 2010 2010 2009 2008 2008 2008 2006 2005 2005 2005

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Venture Findings — 2015-2 — History Issue 129

Conclusion: Providing the Grounding for Exciting Future Prospects The recent history (1990–2015) of the Baltics demonstrates that active support from governmental institutions and IFIs is of paramount importance in the early developmental stages of creating a flourishing venture capital ecosystem.

IFIs play an especially crucial role as they act as experienced and patient LPs willing to sponsor first-time fund managers, educate national governmental institutions on the importance of the venture capital, and inject adequate amounts of capital into the market. The venture capital funds are then, in turn, able to contribute to the countries’ venture capital ecosystems by educating local entrepreneurs and managers, selecting and providing capital to companies with the highest growth potential, and improving their corporate governance by exerting control and providing

FURTHER READING Baltic American Enterprise Fund – IFC factsheet: http://www.ifc.org/ wps/wcm/connect/ a7aa6e00487ca3809d7abd 84d70e82a9/Balaef. pdf?MOD=AJPERES IMF World Economic Outlook Database 2014.

Mezo, J., Bagi, A. (2012) “Crisis Management in the Baltic States,” MPRA Paper, 40366: 428.

Leading venture capital funds, such as Andreessen Horowitz, Accel Partners, Insight Venture Partners and, Intel Capital, have recently invested in companies seeded in, or related to, the Baltics. incentives – while at the same time capturing the wave of economic growth and securing returns for investors.

Such developments in the Baltics have not gone unnoticed by leading venture capital funds, such as Andreessen Horowitz, Accel Partners, Insight Venture Partners, and Intel Capital, as these funds recently invested in companies seeded in, or related to, the Baltics.

Thus, experienced Baltic GPs are well positioned to have a unique chance to put the Baltics on the radar of regional and global venture capital funds through assisting the ever-increasing number of Baltic entrepreneurs to grow their businesses in the coming years. As a result of the large pools of capital dedicated to the Baltics from various IFIs and local LPs of late, the Baltic States provide genuinely exciting investment opportunities. The maturing Baltic venture capital market is, in turn, all set to increase the competitive advantage of the region over time, contributing to the growth and sustainability of the region’s economy due to the growth in the number of hi-tech companies and investments in R&D.

130 Venture Findings — 2015-2— History Issue

To access the full list of references numbered in this article, please follow the QR Code

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新闻摘要

NEWS in brief For Public Authorities For INSTITUTIONAL Investors For Venture Capitalists For Entrepreneurs Coller Institute News

Internet of Things: Challenges and Opportunities

Entrepreneurial Ecosystems – Can Governments Help Them Flourish?

物联网的互联网：机遇与挑战

创业生态系统—政府能助力多少？

The massive potential of Internet of Things (IoT) to stoke convergence and collaboration worldwide is being curtailed by the lack of data security and interoperability among devices and objects. Acknowledging this hurdle, various institutes and organizations in key sectors are striving to frame standards for privacy policies regarding the sharing of information over the internet.

Government support for entrepreneurial ecosystems is an increasingly researched arena. The heightened interest in analyzing what governments can do, and the impact of the policy actions, comes as the imperative that governments ‘do something’ to support entrepreneurship and innovation continues to grow. In the post-global financial crisis world, characterized by slow economic growth and a (relatively) jobless recovery, driving economic activity and employment opportunities is of utmost importance for public policymakers.

New analysis from Frost & Sullivan entitled the “Internet of Things (IoT) – Disruptive Opportunities in Key Sectors” finds that several standardization bodies from Europe and the United States are working towards addressing the issue of device interoperability and standard privacy policies.

At this point, industry is making concerted efforts to envision the future of a world connected across sectors. For true realization of this vision, public authorities must...

Under this guise, a recent World Economic Forum article investigated the modern history of entrepreneurial ambitions on public policymakers’ agendas. The article also examines poignant studies on what national innovation systems, particularly entrepreneurial ecosystems, are,...

The News section offers a selection of recent news covered on the Coller Institute of Venture website: www. collerinstituteofventure.org Please follow the QR codes to access the full text of the news snippets, and join our community for our coverage of global venture trends.

新闻栏目所提供的是从科勒风 险投资研究院官方网站 www. collerinstituteofventure.org 上筛选出的部分近期要闻。 请扫描二维码阅读新闻全文， 并请加入我们，了解更多全球 企业及风险投资潮流 。

PUBLISHED 05 MARCH 2015

132 Venture Findings — 2015-2— History Issue

PUBLISHED 16 JANUARY 2015

Do’s and Don’ts of Public Venture Policy Part II

Do’s and Don’ts of Public Venture Policy Part I

The Rise of Innovation Districts: A New Geography of Innovation in America

公共风投政策的可为与不可为（二）

公共风投政策的可为与不可为（一）

创新区的崛起：创新在美国新的地理分布

Despite the perceived necessity, and apparent ubiquity, of the public promotion of venture, many public policymakers have not effectively supported venture. In light of the disconnect between the expectations for, and the outcomes of, public venture policies, this post highlights the ‘don’ts’ of deploying public policies for advancing local entrepreneurship.

Public policymakers around the world are implementing initiatives to support local venture activity.

The over-arching aim for their venture policies is to create a local entrepreneurial cluster, ideally along the lines of the Silicon Valley hightechnology cluster. Public strategies for promoting entrepreneurship range from headline grabbing programs, such as Startup Chile, to long-term investments in – and changes to – educational systems, including the British government’s introduction of computer programming into the national curriculum.

As the United States slowly emerges from the Great Recession, a remarkable shift is occurring in the spatial geography of innovation. For the past 50 years, the landscape of innovation has been dominated by places like Silicon Valley – suburban corridors of spatially isolated corporate campuses, accessible only by car, with little emphasis on the quality of life or on integrating work, housing, and recreation, stated in Brookings’ recent report on innovation districts.

Don’t 1. Over-engineer support: policies that build on existing strengths and make modest investments are favored over initiatives that deploy large sums of public money, impose numerous restrictions, or comply with the “if you build it, they will come” mantra.

2. Fund activities that are unlikely to ever be selfsustaining: this is a tricky ‘don’t’ since much of the rationale for government investment in...

PUBLISHED 11 AUGUST 2014

This post provides policymakers with advice – in terms of three ‘do’s’ – on how they can best support local venture activity in today’s context.

Do 1. Build on local competitive advantages: localities should not simply strive to replicate ...

PUBLISHED 03 AUGUST 2014

Apparently, these ‘innovation districts’ are a new, emerging contemporary urban model, and these geographical areas are where leading-edge anchor institutions and companies cluster and connect with start-ups, business incubators, and accelerators. What’s more, they are the manifestation of mega-trends altering the location preferences of people and firms and, in the process, re-conceiving the very link between economy...

PUBLISHED 29 JUNE 2014

Venture Findings — 2015-2 — History Issue 133

新闻摘要

NEWS in brief For Public Authorities For INSTITUTIONAL Investors For Venture Capitalists For Entrepreneurs Coller Institute News

Releasing the Potential of a Capital Markets Union in Europe

Women VCs and Ceos: Few and Far Between

释放在欧洲建立资本市场联盟的潜力

职场中女性成为风投家及总裁并不常见

A guest post by Dörte Höppner, Chief Executive of the European Private Equity and Venture Capital Association (EVCA), explored the publication of the European Commission’s Green Paper, which identifies private equity and venture capital as playing a key role in Europe’s economy.

Given the wealth of research indicating the importance of diversity in top management, the latest Diana report – entitled “Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital” – recommends that institutional investors demand that VCs include women partners and invest in more businesses with women on the team.

Green Paper explicitly names private equity and venture capital as an important source of direct financing.

Indeed, between 2007 and 2013, European private equity and venture capital invested €307 billion in 25,000 companies, employing more than eight million people.

To unlock more of this essential financing, the EU should aim to free up the enormous pool of capital sitting with institutional investors, enabling it to flow across borders...

You don’t need research and a report to know that women are under – represented both as VC partners and CEOs. What is shocking is the starkness of the statistics: • 85% of companies receiving venture capital during 2011– 2013 did not have a woman on the executive team • Only 183 out of the 6,517 companies receiving venture capital funding in this time period had a woman CEO (less than 3%)...

The News section offers a selection of recent news covered on the Coller Institute of Venture website: www. collerinstituteofventure.org Please follow the QR codes to access the full text of the news snippets, and join our community for our coverage of global venture trends.

新闻栏目所提供的是从科勒风 险投资研究院官方网站 www. collerinstituteofventure.org 上筛选出的部分近期要闻。 请扫描二维码阅读新闻全文， 并请加入我们，了解更多全球 企业及风险投资潮流 。

PUBLISHED 20 FEBRUARY 2015

134 Venture Findings — 2015-2— History Issue

PUBLISHED 09 FEBRUARY 2015

The Turning Point for Venture Capital?

Venture Capitalists Get Paid Well to Lose Money

The Global Unicorns Universe

风险投资的转折点

风投家薪酬不低，却表现平平

全球“独角兽公司”俱乐部

Following a rapid reversal of fortunes at the turn of the Millennium, the venture capital industry has experienced largely lackluster returns which have led to tough fundraising conditions for all but a select group of top-tier managers.

However, more recently there have been some encouraging signs across the industry, with market conditions becoming more favorable, returns improving, and fundraising picking up as investors take note. Is this the turning point for venture capital?

Jessica Duong examined the drivers of this success, and the impact of this on LP attitudes to the asset class.

Diane Mulcahy is a Senior Fellow at the Ewing Marion Kauffman Foundation and author of the widely-read report We Have Met the Enemy…and He is Us. In a recent post, Diane points out that the ongoing poor performance of venture capital firms should be an obvious problem for institutional investors. Furthermore, she states that we should try to understand the “real problem” – [which] is how little of a problem this persistent underperformance is for VCs themselves.

Aileen Lee’s unicorn Club article got a lot of attention when TechCrunch released the ground breaking analysis, Welcome To The unicorn Club: Learning From Billion-Dollar Startups, in November 2013. We followed the unicorn Club and its related articles including A unicorn?

In Israel? by Noam Bardin from Waze, and Fred Wilson followed with his own post, The Billion Dollar Valuation Club, noting primarily that Aileen’s list of 39 companies was U.S. and Silicon Valley centric.

According to a recent Preqin report, “the pattern for venture capital returns shows clear underperformance relative to other strategies over 10 years, with an improving picture more recently past.” The internet, software,...

PUBLISHED 08 DECEMBER 2014

There are four major issues that Diane wants to bring to our attention: 1. VCs aren’t paid to generate great returns.

2. VCs are paid very well when they underperform.

3. VCs barely invest in...

PUBLISHED 01 SEPTEMBER 2014

According to William Mougayar, in his article about Global unicorns, the list was also missing several other companies. Mougayar pored over more than 500 companies, and compiled a list of global startups that were founded since 2000 with market valuations over US$250 million. He found...

PUBLISHED 07 MAY 2014

Venture Findings — 2015-2 — History Issue 135

NEWS in brief For Public Authorities For INSTITUTIONAL Investors For Venture Capitalists For Entrepreneurs Coller Institute News

Vc Participation in Us Tech Deals on The Wane: Tech Bubble Alarm?

A ‘Blessing’ of Mobile Unicorns

风投在美国技术行业参与度降低，敲 响技术泡沫的警钟？

移动产业“独角兽公司”的福祉

The 2014 U.S. Venture Capital Year in Review, published by CB Insights, reports a big year for venture in the U.S. – the highest since 2000.

Most of the money went to tech companies. So far so good. However, 2014 actually saw the lowest level of VC involvement on a dollars basis, with 25% of funding (US$11.1 billion / US$44.5 billion) of tech funding coming from deals not involving VCs.

Today there are 68 mobile unicorns worth US$261 billion, which account for the bulk of tech unicorns globally.

The US$261 billion value of the mobile Internet list (not counting Facebook) is spread across six main sectors: travel/transport (including Uber, Didi Dache, and Yongche), mCommerce (dominated by Asian companies, such as Flipkart, Snapdeal, and One97), social networking (including Twitter and Snapchat, and which should count Facebook but doesn’t because it swamps everything else), messaging (such as WhatsApp and Daumkakao), games (with 11 companies from King to GREE), and utilities (like UCWeb).

America is the king of mobile internet value creation, with 24 companies delivering US$144 billion of...

This finding is sharply illustrated when the data is evaluated on a deals basis. Of the 5,859 tech investment deals in the U.S. last year, VC investors participated in only 49% – or in just under one of every two deals. This is down sharply from 2010, which saw 61% of all tech deals involving a VC. The rise of angel investors, larger...

The News section offers a selection of recent news covered on the Coller Institute of Venture website: www. collerinstituteofventure.org Please follow the QR codes to access the full text of the news snippets, and join our community for our coverage of global venture trends.

新闻栏目所提供的是从科勒风 险投资研究院官方网站 www. collerinstituteofventure.org 上筛选出的部分近期要闻。 请扫描二维码阅读新闻全文， 并请加入我们，了解更多全球 企业及风险投资潮流 。

PUBLISHED 19 MARCH 2015

136 Venture Findings — 2015-2— History Issue

PUBLISHED 05 MARCH 2015

Trends in Water Venture 2015

Temasek of Singapore to 3 Ways VCs Can Add Invest in Tel Aviv Value to Your Startup University Technology Beyond the Cash Innovation Momentum Fund

2015 年水能创业潮流

新加坡淡马锡公司投资于特拉维 夫大学技术创新基金

除了现金，风投家能够为您的初创企 业增加价值的3种方式

The world will not be able to meet the challenges of the 21st century without improving how countries manage their water resources and ensuring that everyone has access to reliable water and sanitation services (World Bank).

The Technology Innovation Momentum Fund, an investment initiative of Tel Aviv University (TAU) and Ramot (the tech transfer company of TAU), has secured a US$5 million commitment from Temasek.

Together with a lead investment from Tata, the Momentum Fund is now closing this round with an over-subscribed level of investment of US$23.5 million. The Momentum Fund has already selected six leading technologies in Q1 2014 and is in the process of selecting an additional four to six in Q4 2014. The Momentum Fund is expected to support 20–40 promising innovations across a wide range of fields, including engineering and exact sciences, environment...

For entrepreneurs who didn’t choose a VC for their startups, they always put it this way, “the only value VCs add to a company is money.”

This sentiment was confirmed

by Sam Hogg in his recent post at Entrepreneur. However, he points out that “in fact, the profile of a typical VC is starting to mirror that of a successful entrepreneur, and the next generation of VCs will likely have resumes that are heavy on entrepreneurial operating experience.”

PUBLISHED 24 NOVEMBER 2014

PUBLISHED 12 NOVEMBER 2014

A recent report issued by The Hamilton Project, Stanford Woods Institute for the Environment, discusses how to facilitate water innovation (the focus is on the U.S.).

The authors identify three categories of innovative technology: supply enhancement, demand management, and governance improvement.

These categories cover a gamut of technological innovations, including smart water, efficiency and...

PUBLISHED 08 JANUARY 2015

In addition, he presents three ways VCs could add value to the startup besides the money: experience on boards, help with fundraising, and help with recruiting. And the power of VCs is not limited to these three...

Venture Findings — 2015-2 — History Issue 137

NEWS in brief For Public Authorities For INSTITUTIONAL Investors For Venture Capitalists For Entrepreneurs Coller Institute News

How to Pitch: Focus on the Who or the What?

A Startup That Enables More Startups

如何推介：

初创公司引发创业潮流

着重展示自己还是展示项目？

When pitching to investors, the entrepreneur may decide to place the emphasis of the pitch on the business idea. Alternatively, the entrepreneur may center the presentation on his personage, calling upon his name, resume, or past accomplishments.

Facebook enriches the venture ecosystem according to a new Deloitte report. The Deloitte report of January 2015, commissioned by Facebook, seeks to demonstrate that this company is much more than a social network.

Are prospective investors influenced in their investment decisions by the entrepreneurs’ description? Should entrepreneurs focus their business pitches on themselves or on their projects? The answer, for some fund seekers, is: don’t hesitate to focus on yourself and mention your name.

Based on data provided by Facebook, Deloitte estimates Facebook’s global economic impact to be US$227 billion, with 4.5 million jobs enabled globally. It is reasoned that Facebook stimulates economic activity by lowering barriers to marketing, providing a platform for app developers and generating a need for devices and internet connections. Further, it is suggested that the demanded improvements in connectivity spill over to the rest of the economy.

Research on this issue has been carried out by Professor Orly Sade and Dr. Dan Marom of the Jerusalem School of Business Administration at the Hebrew University of Jerusalem. Sade and Marom’s research empirically investigated the importance of the entrepreneurs’ description in the...

At the level of the entrepreneur, Facebook helps entrepreneurs...

The News section offers a selection of recent news covered on the Coller Institute of Venture website: www. collerinstituteofventure.org Please follow the QR codes to access the full text of the news snippets, and join our community for our coverage of global venture trends.

新闻栏目所提供的是从科勒风 险投资研究院官方网站 www. collerinstituteofventure.org 上筛选出的部分近期要闻。 请扫描二维码阅读新闻全文， 并请加入我们，了解更多全球 企业及风险投资潮流 。

PUBLISHED 23 FEBRUARY 2015

138 Venture Findings — 2015-2— History Issue

PUBLISHED 22 JANUARY 2015

A Comprehensive, Crowd-Sourced Map of the Israeli Startup Scene

Entrepreneur Steve Blank on startups, pivots, and corporate innovation

Nesta Report reveals the fast growing, diverse and impactful ways SMEs are fundraising

一张以色列创业的综合性众包地图

企业家斯蒂夫·布兰克 (Steve Blank) 谈初创企业、企业转向和企业创新

NESTA报告揭示中小型企业快速

Steve Blank is among the most respected authors and teachers in the world on the topic of modern startups. Blank’s approach to startups and innovation relies on concepts such as “evidence-based entrepreneurship” and “customer development.” These ideas reflect the belief that startups are “temporary organizations designed to search for repeatable and scalable business models.”

Steve recently commented on startups and his approach to innovation in large organizations: • On gathering data by talking to many potential customers • On failing fast and pivots • On minimal viable products and agile engineering • On corporate innovation and startups • On the challenge of corporate innovation...

Nesta’s November 2014 report on “Understanding Alternative Finance”, authored by Peter Baeck, Liam Collins, and Bryan Zhang, provides a comprehensive map and assessment of the alternative finance sources available to SMEs in the UK. Importantly, the study identifies alternative finance’s users, providers, and its socio-economic impact. It provides important insights into alternative finance’s remarkable volume growth – to a reported £2.74 billion in 2014 – and the increasing breadth of the sector in terms of new forms and the people and organizations providing and using alternative finance.

PUBLISHED 14 DECEMBER 2014

PUBLISHED 01 DECEMBER 2014

Eden Shochat – a partner at Aleph, a venture capital fund focused on serving Israeli entrepreneurs – has outlined how a simple spreadsheet, started on a whim, became a comprehensive mapping of the Israeli startup ecosystem. The spreadsheet is the result of the power of crowdsourcing.

After Eden posted his first version of the names, focus areas, minimum and maximum investment as well as contact details for 68 active Israeli seed investors, he received massive responses from the crowd. Soon the community started adding other useful tabs into the spreadsheet, such as startups looking for capital, accelerator programs, international tech companies doing business in Israel, incubators, contact details for journalists, and even a list of venture capital firms. And the same model was duplicated in Sweden as well as in Spain...

PUBLISHED 29 DECEMBER 2014

成长、多元化且有效的募资方式

Alternative finance appears to be having a large, positive impact on SMEs in the UK. Remarkably, over 80,000 people will have received financing through P2P consumer loans in 2014. Rather than...

Venture Findings — 2015-2 — History Issue 139

NEWS in brief For Public Authorities For INSTITUTIONAL Investors For Venture Capitalists For Entrepreneurs Coller Institute News

Noa Mondrowicz Joins Coller Institute of Venture as Marketing Director

Our Favorite Venture Journals – What are Yours?

诺亚·孟德洛维茨 (Noa Mondrowicz) 加入科勒风险投资研究院担任市场 总监

我们最喜爱的风投期刊，你的最爱呢？

We are happy to announce that Noa Mondrowicz has joined the Coller Institute of Venture as Marketing Director. Previously Noa was Field Marketing Manager for Middle East and Africa at Check Point Technologies, where she managed regional marketing campaigns and channel partners. Noa brings over eight years of experience in B2B hitech marketing, with a specialization in Marketing Communications. She was granted her M.A. (with honors) in Conflict Resolution and Mediation from Tel Aviv University and holds a B.A. degree in History...

We have created a Venture Journals page as a resource for the Coller Institute of Venture community.

Nine key journals relating to the venture ecosystem were selected by academic members of the Coller Institute community. When you want to quickly survey the latest venture research, we hope this portal will help you find the most relevant publications.

PUBLISHED 26 APRIL 2015

PUBLISHED 26 MARCH 2015

For example, if you go into the Journal of Business Venturing you will find an article in the latest issue (May 2015) describing a study investigating the significance of genetics in determining if you have the personality traits associated with being a successful entrepreneur.

According to Shane and Nicolaou, there is indeed a substantial genetic element. Perhaps one day in the future, instead of listening to an elevator pitch, VCs will just...

The News section offers a selection of recent news covered on the Coller Institute of Venture website: www. collerinstituteofventure.org Please follow the QR codes to access the full text of the news snippets, and join our community for our coverage of global venture trends.

新闻栏目所提供的是从科勒风 险投资研究院官方网站 www. collerinstituteofventure.org 上筛选出的部分近期要闻。 请扫描二维码阅读新闻全文， 并请加入我们，了解更多全球 企业及风险投资潮流 。

140 Venture Findings — 2015-2— History Issue

Coller Institute of Venture Welcomes Hiro Mizuno as Senior International Affiliate

EVCA Venture Capital Forum – Key Takeaways

Deep Innovation Workshop

科勒风险投资研究院欢迎水野弘

EVCA风险投资论坛要点概括

深度革新工作室

We are delighted to announce that Hiro Mizuno has joined the team at Coller Institute of Venture as Senior International Affiliate. Presently, Hiro is an Executive Managing Director and CIO of Government Pension Investment Fund, Japan. Prior to that, he was a partner at Coller Capital.

Hiro holds a BA in Law from Osaka City University and an MBA from Northwestern University, Kellogg Graduate School of Management.

Among his public roles: Executive advisor to Japanese cabinet on health care and medical growth strategy, Japanese cabinet strategic funds integrated advisory board member, Ministry of Education National Universities Evaluation Committee member, Executive advisor to Hiroshima and Innovation Platform.

In the academic world he is a visiting professor of Kyoto University, Centre of Society-Academia Collaboration...

The 2014 EVCA Venture Capital Forum was very well attended with almost a third more participants than the previous year. VCs are increasingly optimistic as exit prospects look promising and ever larger numbers of European VCbacked companies are growing to become €1 billion-plus businesses.

Participants reported more growth capital coming into the market and a rise in corporate venturing, but the two most pressing issues for many remain: a) a lack of later stage funding for startups; and b) the need for more private capital to flow towards venture capital funds.

Overall, the sentiment was that the European industry still lags behind the U.S., but is becoming increasingly sophisticated. There are now many more serial entrepreneurs to back and growing levels of seed financing, all of which demonstrates that the European VC ecosystem is coming...

On 19 May 2014 we organized and hosted an international Deep Innovation Workshop. As a record of the productive and energetic discussions, we have compiled videos including keynote talks, presentations, team work and reflections, research, the awards ceremony and so on.

Talks were given a framework for understanding the venture ecosystem, the history of venture, government support, and challenges to deep innovation. Tel Aviv University scholars then presented their research on nano-technology and brain science. To watch videos...

PUBLISHED 18 FEBRUARY 2015

PUBLISHED 16 NOVEMBER 2014

PUBLISHED 08 SEPTEMBER 2014

(Hiro Mizuno) 成为研究院高级国际会员

Venture Findings — 2015-2 — History Issue 141

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